February 25, 2015 / 11:45 AM / 3 years ago

Greece sees problems repaying IMF, ECB; Germans air mistrust

A Greek national flag flutters as Greek Orthodox priests make their way on main Constitution (Syntagma) square in Athens February 25, 2015. Germany's Finance Minister Wolfgang Schaeuble said on Wednesday it had not been an easy decision for euro zone finance ministers to extend the Greek rescue plan by four months and much doubt remained about how credible Athens' latest reform commitments really were. REUTERS/Alkis Konstantinidis (GREECE - Tags: POLITICS BUSINESS RELIGION)

ATHENS/BERLIN (Reuters) - Greece said on Wednesday it will struggle to make debt repayments to the IMF and the European Central Bank this year as Germany’s finance minister voiced open doubts about Athens’ trustworthiness.

A day after euro zone finance ministers agreed to a four-month extension of a financial rescue for the currency bloc’s most heavily indebted member, Finance Minister Yanis Varoufakis gave a frank assessment of Greece’s financial position.

“We will not have liquidity problems for the public sector. But we will definitely have problems in making debt payments to the IMF now and to the ECB in July,” he told Alpha Radio.

He put no figure on the funding gap. After interest payments this month of about 2 billion euros, Athens must repay an IMF loan of around 1.6 billion that matures in March and about 7.5 billion in maturing bonds held by the ECB in July and August.

Greece is due to receive 7.2 billion euros in remaining EU/IMF bailout funds if it successfully completes the programme.

But German Finance Minister Wolfgang Schaeuble, revelling in his role as the euro zone’s grumpy paymaster, said no further aid would be paid out until Athens fulfilled all the conditions.

“The question now is whether one can believe the Greek government’s assurances or not. There’s a lot of doubt in Germany, that has to be understood,” he told SWR2 radio.

Fuelling German suspicion, a hardline leftist in Greek Prime Minister Alexis Tsipras’ radical new government appeared to row back on a commitment made to creditors a day earlier to allow privatisations that are already under way to proceed.

Energy Minister Panagiotis Lafazanis said the government would not go ahead with the sale of the main electricity utility PPC or power grid operator ADIME.

“The companies have not submitted binding bids so it will not be completed,” he told Ethnos newspaper.

That drew an angry response from Berlin, where a finance ministry spokesman said Athens could not decide to delay or stop privatisations on its own.

Despite scepticism in both governments and dissenting voices on their fringes, the four-month bailout extension seems certain to be approved by the German and Greek parliaments this week.

However, the next round of negotiations on Greece’s debt mountain will start as soon as those votes go through, and take place under the shadow of a looming repayment crunch.

“It is highly unlikely Greece would be able to regain market access before the summer, meaning a replacement programme will probably be needed in advance of the new end-June expiry date,” credit ratings agency Fitch said in a statement.

In the meantime, the best way to plug the current expenditure funding gap would be to let the government issue more short-term treasury bills, currently limited to 15 billion euros, Fitch said.

BETTER THAN ALTERNATIVE

European Central Bank President Mario Draghi told the European Parliament that the bank stood ready to restore normal funding for Greek banks as soon as it sees the conditions for a successful conclusion of the bailout programme in place.

The ECB barred banks earlier this month from using Greek government bonds as collateral to obtain funds, after Tsipras said his government aimed to scrap the bailout. They have been forced to survive on more expensive and rationed emergency lending assistance from the Greek central bank to stay afloat.

German Chancellor Angela Merkel, seeking to convince doubters in her own conservative bloc and the public, said the extension deal was preferable to the alternative.

“I welcome the fact that we have found a starting point for negotiations with the new government. This is gratifying when you see what was being talked about weeks ago,” she said in an oblique reference to the risk of Greece going bankrupt and being forced out of the euro area.

“In the last few days we managed to show we are all able to make compromises, which is not unimportant, though it is far from being everything,” she told a news conference.

Right-wing dissident lawmakers warned against throwing good money after bad by continuing to support Greece, but Merkel was assured of a comfortable majority since her right-left “grand coalition” controls 504 seats in the 631-member lower house.

Merkel’s Bavarian sister party, the Christian Social Union, which has been sceptical of bailouts, agreed to support the extension. An INSA opinion poll showed only 21 percent of Germans back an extension of assistance to Greece.

Berlin has ruled out any debt write-down for Athens and Schaeuble’s spokesman said it was premature to talk now about either a precautionary credit line or a third bailout programme when the four months expire.

Varoufakis said he wants discussion of debt restructuring to begin immediately and encompass bond swaps that would “significantly reduce the debt” to official creditors.

If European leaders “shoot down” Greece’s anti-austerity government, they would drive the country into the arms of racists and nationalists, he told French satirical newspaper Charlie Hebdo.

“This is what I tell my counterparts: if you think it is in your interest to shoot down progressive governments like ours, just a few days after our election, then you should fear the worst,” Varoufakis said.

In another indicator of the strain on the Greek economy, two of the country’s four main lenders, Eurobank and Bank of Piraeus, will be dropped from the pan-European STOXX 600 benchmark index, potentially depriving them of vital investment at a rocky time.

Despite a rebound since the bailout extension was agreed, shares in the two banks have fallen about 65 percent since last February, hurt by a wave of deposit withdrawals and worries over the solvency of the Greek state.

Additional reporting by Angeliki Koutantou; Writing by Paul Taylor; Editing by Giles Elgood

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