Hopes for a deal over Greece’s €315bn (£240bn) debt buoyed markets on Tuesday as new finance minister Yanis Varoufakis stepped up his efforts to get the backing of the country’s creditors.
Varoufakis, the Marxist economist appointed to the post after last week’s election, will meet the head of the European commission, Jean-Claude Juncker, and Mario Draghi, head of the European Central Bank on Wednesday, following talks with his finance counterparts in France, Britain and Italy.
Soothed by comments from Varoufakis on Monday that Greece was not attempting to write off its debts, the Athens stock market closed more than 11% higher while the FTSE 100 index in London was up more than 1% and stocks in Italy and Spain up more than 2.5%. Yields on government bonds fell, indicating tensions were easing.
Varoufakis, who is proposing Greece’s debt repayments be linked to economic growth, will face a showdown with the German finance minister, Wolfgang Schäuble, on Thursday. Germany is expected to be tough to win over in an any attempt to relieve the debt repayments facing Greece, which was bailed out by the European Union, the European Central Bank and the International Monetary Fund. The programme under which Greece has received €240bn in bailout funds is due to formally end on February 28.
The German chancellor, Angela Merkel, was cautious about the prospects of talks and there have been warnings that any process could drag on. “We are waiting for proposals and then we will enter talks,” Merkel said.
Policymakers at the Bank of England giving evidence to MPs were cautious about the damage Greece could still wreak on financial markets. George Osborne warned after his meeting with Varoufakis on Monday that “the standoff between Greece and the eurozone is the greatest risk to the global economy”.
Martin Taylor, the former boss of Barclays who sits on the Bank of England’s financial policy committee, said the debt level “looks to me to be unsustainable”.
“If creditor nations really do believe they are going to get their money back from Greece then we are in an even worse situation than I thought,” Taylor told the MPs on the Treasury select committee.
Any deal with Greece would not provide a long-term solution to the problems in the eurozone. “It will solve this week’s,” Taylor said. An exit from the eurozone by Greece would have “pretty much uncontrollable results” without co-ordinated action by policymakers, he added. He said, though, that he expected Germany to find a solution to the problem.
Donald Kohn, a former official at the US Federal Reserve who also sits on the Bank of England committee, said he detected a “little bit of give” in the situation and expected a deal to be achieved.
Varoufakis has said he wants to put his proposals to eurozone finance ministers next week. He started out trying to win support for his ideas in meetings with bond investors in London on Monday.
