Greece, EU creditors in open dispute over debt demands

Greece and its European bailout creditors were in open dispute Friday, with Germany bluntly rejecting suggestions the heavily indebted country should be forgiven part of its rescue loans and warning against "blackmail" from Athens.

Greece's five-day-old radical left government insists it will honour pre-election promises to seek a cut on most of the country's rescue debt and scrap painful budget measures that were demanded in exchange for the loans.

German Finance Minister Wolfgang Schaeuble, however, warned Athens against strong-arm negotiating tactics in its effort to win debt relief. Rules need to be kept, and trust and reliability were the basis for further solidarity, the dpa news agency reported him saying.

"There's no arguing with us about this, and what's more we are difficult to blackmail," Schaeuble was quoted saying in Berlin.

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"We are prepared to offer all co-operation and solidarity," he said, but only if Greece abides by its agreements, under which it received €240 billion ($270 billion US) in rescue loans.

Without the loans from its fellow eurozone countries and the International Monetary Fund, Greece would struggle to service its debts and avoid bankruptcy.

"The discussion about a debt cut or a debt conference is divorced from reality," Martin Jaeger, a German finance ministry spokesman, said in Berlin earlier.

Greece's Parliamentary Budget Office, which makes quarterly recommendations to lawmakers, warned that the country faces default unless a deal with creditors is reached soon. Greece's next government debt obligations are due in March.

Shares on the Athens Stock Exchange closed down 1.6 per cent Friday, capping total losses of 13 per cent for the week, while the interest rate on three-year bonds — a gauge of short term risk of default — rocketed to 19.3 per cent.

In Athens, Jeroen Dijsselbloem, the Dutchman who chairs eurozone finance ministers' meetings, met with top officials to sound out the new government.

Dijsselbloem acknowledged Greeks have gone through much in recent years to reform their economy, and warned that rash actions by the government would not help.

"Taking unilateral steps or ignoring previous agreements is not the way forward," he told reporters in statements after his meeting with Finance Minister Yanis Varoufakis.

Prime Minister Alexis Tsipras's government, voted in last Sunday, has already said it will cancel several planned privatization projects and considerably scale down planned budget surpluses required to pay down Greece's massive national debt.

Tsipras will launch a small tour of other eurozone countries next week, flying to Cyprus, Italy and France on Monday, Tuesday and Wednesday, respectively.

Greece's bailout, which began in May 2010, runs out on Feb. 28 after an initial two-month extension was granted for completion of frozen negotiations with the so-called "troika" — the European Commission, European Central Bank and IMF.

Greece and the troika hold talks regularly to make sure Athens keeps up its reforms and qualifies for the next instalment of loans. Because the latest talks have yet to be concluded, Greece still has to receive the last, €7.2 billion-batch of its loans from the eurozone.

Dijsselbloem said the eurozone countries would decide before Feb. 28 what to do about financing Greece. He also rejected Greece's request to hold a conference to discuss restructuring its debt, saying the eurozone's monthly finance meetings would serve the purpose.

Athens disputes deadline

But Greek State Minister Nikos Pappas said Athens is no longer bound by the deadline.

"I think you will see in coming days that that deadline does not exist," he told private Mega TV, adding that Greece is aiming for "a political framework to reach a solution."

Varoufakis, for his part, said Greece was not asking for an extension of the existing bailout, as the government disputed the very wisdom of the program in the first place.

"Our intention is to — with an absolute will to co-operate — to persuade our partners ... that our common interest in Europe is served best by a new agreement that will emerge following talks between all Europeans," he said.

He said the new government would not be talking to the bailout negotiators from the troika.

Instead, the minister said, the government would co-operate with the "legitimate institutions of the European Union and the International Monetary Fund."

The new government has indicated that it is not interested in receiving the last €7.2 billion loan instalment from its European partners, and will instead focus on debt forgiveness.

Credit ratings agency Fitch said Friday that, in the short term, both sides have a "strong incentive" to reach an agreement to make sure Greece gets the rescue money from the bailout programs. It warned, however, that drawn-out negotiations pose a "high risk" to the country's fragile economy.