ECB warns Greece as ministers plan softer bailout bid

By Harry Papachristou and George Georgiopoulos

(Reuters) – The European Central Bank told Greeceon Monday not to waste time trying to renegotiate its international bailout as government ministers hashed out a plan for easing its punishing terms before a review by the country’s lenders.

Echoing Greece’s euro zone partners, ECB policymaker Joerg Asmussen signalled that Prime Minister Antonis Samaras was unlikely to win much leeway in imposing austerity measures demanded by the European Union and IMF under its bailout program.

“The first priority for the new Greek government has to be getting the programme back on track,” Asmussen, an ECB Executive Board member, said in a speech in Athens. “The new government should not lose precious time looking to avoid or loosen the programme.”

Facing huge public pressure, Samaras wants more time to meet targets and to dilute the austerity measures that have helped condemn Greece to a fifth year of recession.

Ministers from the conservative-led coalition were huddled in talks on Monday to work out the plan before “troika” inspectors from the EU, ECB and IMF begin their review of Greece’s faltering progress in fiscal adjustment and reforms.

Greek and troika sources said the inspectors would start their work on Wednesday, with mission chiefs also visiting to meet the new government. The process could take weeks.

“We haven’t seen any numbers for some time now. We need at least a week to catch up,” a troika official told Reuters.

Samaras’s election victory on June 17 over a radical leftist bloc committed to tearing up the bailout deal removed the immediate threat of Greece crashing out of the euro.

But his uneasy coalition of right and left was forged on a promise to ease the burden on a society struggling with the tax hikes, job losses and wage cuts imposed as the price of two multi-billion-euro bailouts since 2010.

Samaras, 61, says the harsh austerity is only choking the Greek economy and delaying recovery.

The euro zone says the programme can be adjusted to take account of weeks of political paralysis during elections in May and June and the deeper than expected recession. However, lenders led by Germany, the biggest contributor to the bailout, have ruled out any radical changes.

Opposition leader Alexis Tsipras, whose left-wing Syriza bloc surged into second place in the June election on a promise to reject the bailout, said Greece was “just chasing its tail”.

“Continuing the bailout’s austerity will push our country to voluntarily withdraw from the euro zone,” he told the Economist Conference where Asmussen spoke. “The most important parts of society, the young scientists, the pioneers of Greece’s future, are being pushed to the margins of society and fleeing abroad.”


Tsipras, 37, said Greece should demand that the concessions granted to Spain at last week’s EU summit also be applied to Greece, particularly the direct recapitalisation of banks from EU rescue funds. In Greece’s case, direct recapitalisation would cut about 50 billion euros ($64 billion) from the national debt.

But in a newspaper interview on Sunday, Asmussen said there should be no illusion that the summit’s conclusions would change things for Greece. He cautioned on Monday that granting the country more time would only cost more money.

“Delaying adjustment is risky,” he said. “And it is also not free.” Asmussen, a former adviser to German Chancellor Angela Merkel, later met Greece’s outgoing and incoming finance ministers, saying afterwards only that they had a “good first meeting”.

Cabinet ministers gathered at the finance ministry to prepare for the troika visit and were expected to meet Samaras, who is recovering from eye surgery, later in the day.

There was some relief when the government received the remaining 1 billion euro portion of its latest bailout tranche worth 5.2 billion euros, a senior government official said.

Greece’s state coffers are almost on empty. Underscoring the scale of the problem, a survey released on Monday showed a manufacturing slump worsened in June between the two elections, leading to sharp drops in production and employment.

Markit’s manufacturing purchasing managers’ Index (PMI) for Greece dropped to 40.1 points last month from 43.1 in May, its weakest reading since February’s record low of 37.7 points and well below the 50 mark that divides growth from contraction.

“Whether the formation of the new coalition government helps to improve confidence remains to be seen,” said Markit senior economic Paul Smith. “There can be no doubting that fundamental problems facing manufacturers – and for that matter the Greek economy as a whole – are inevitably going to take a long time to solve.”

Looking to cut its losses, France‘s Credit Agricole (CAGR.PA) was in talks with at least one bank to sell all or part of its struggling Greek unit Emporiki Bank. Greece’s biggest bank, National Bank (NBGr.AT), said in a statement to the stock exchange that it was in talks over a “strategic alliance” regarding Emporiki.

A Credit Agricole spokeswoman declined to comment, but a Paris-based source familiar with the matter said there were a number of suitors for Emporiki, which has cost Credit Agricole billions of euros in capital in recent years.

(Additional reporting by Dina KyriakidouDeepa Babington and Renee Maltezou in Athens,Christian Plumb and Lionel Laurent in Paris; Writing by Matt Robinson; editing by David Stamp)


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