World / Europe

German, Greek finance ministers at odds at first meeting

(Agencies) Updated: 2015-02-05 21:30

BERLIN - Greece's new finance minister sought to convince his skeptical German counterpart to back a new approach on Greece's debt - but an agreement still appeared a long way off.

Meeting for the first time since the anti-bailout Syriza took power, the two finance ministers held talks in the German capital Thursday about how to move ahead over Greece's attempts to renegotiate the terms of its debts.

Germany's Wolfgang Schaeuble said the two "agreed to disagree" and that a writedown, or haircut of Greece's debt, wasn't on the table.

Germany's views matter as it is the biggest European contributor to Greece's five-year bailout program. Germany is a staunch proponent of the strict fiscal discipline that led to deep income cuts in Greece, record-high unemployment and an economic depression.

Schaeuble renewed offers to help Greece strengthen its tax system and said some things the new government has announced go in the right direction _ such as getting the rich to pay tax and combating corruption.

But he said that "some of the measures that have been announced ... don't necessarily go in the right direction." He also made it clear that it's important to respect existing agreements, arguing that "reliability is the condition for confidence."

Greece's Yanis Varoufakis said Greece would do everything to avoid any default and said he was confident that Athens and its partners would "put the D word out of court."

Varoufakis said the Greek government is looking to a bridging program between now and the end of May to give room for talks on "a new contract" with the European Central Bank, International Monetary Fund and European Union.

The discussions between the two came as jittery investors dumped Greek shares after the European Central Bank tightened the screws on the country's banking system, in a move that piles pressure on the new anti-austerity government to swiftly conclude a compromise deal with bailout creditors.

Shares on the volatile Athens stock exchange dived nearly 10 percent on opening, but later recovered a bit and were trading 5.5 percent down at midday. The interest rate on Greece's 10-year bonds also ratcheted 0.63 percentage point higher to 10.42 percent, in a further sign that investors are concerned about the new government's ability to quickly conclude a debt deal with its creditors.

The talks between the two finance ministers came a day after the ECB said it would stop lending to Greek banks using the nation's junk-rated government bonds as collateral. The ECB justified the move by saying prospects appear uncertain for a new deal between the radical left government in Athens and its international bailout creditors. Greek banks retain access to emergency lending, but at a higher cost and subject to ECB approval.

"It is difficult to see this as anything other than a very aggressive move by the ECB," said Gary Jenkins, chief credit strategist at LNG Capital.

Prime Minister Alexis Tsipras' 10-day-old government played down the impact on Greece's banking system and insisted that it would stick to its anti-austerity agenda. It said the ECB ruling put pressure on Athens and its creditors alike to strike a deal.

A complete cutoff from the ECB, including a refusal of more emergency credit, could pull the plug on Greek banks, leaving the government with no other source of funds to rescue them except for printing a new national currency. However, analysts say the ECB will be reluctant to make such a move unless politicians have exhausted all their options for a compromise.

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