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The Dirty Dozen: 12 people who ruined Greece

As negotiations inch along between the Syriza government and Greece’s international creditors, the blame for the nation’s looming financial collapse would seem to rest entirely on the shoulders of Prime Minister Alex Tsipras and Finance Minister Yanis Varoufakis. But not really: History provides ample evidence that a long line of leaders, from Winston Churchill to Constantine II, helped make Greece the economic basket case it is today.

Here are some of the guiltiest culprits:
Konstantis and Georgios Mavromichalis (died 1831)

Konstantinos_Mavromichalis copy

When Greek-born Ioannis Kapodistrias was appointed independent Greece’s first governor in 1827, little did he realize that the job would be tougher than his former post as Russia’s foreign minister. Accustomed to working on the diplomatic stage, Kapodistrias soon found that his vision of a modern Greek state was not shared by everyone, especially the provincial elites.In 1831, he was stabbed in the stomach and shot in the head as he made his way to church by Konstantis and Georgios Mavromichalis. The killing was revenge for Kapodistrias’s jailing of their respective father and brother, the warlord Petrobey Mavromichalis. His assassination plunged Greece into chaos, leading the European powers to impose a foreign king, the young Bavarian prince Otto, on the young country, giving it a first taste of German rule.

Winston Churchill (1874–1965)

Churchill

In 1944, Greece’s leftist partisan movement managed to see the backs of the German army after three and a half years of brutal wartime occupation. Unbeknownst of them, British prime minister Winston Churchill and Soviet leader Joseph Stalin had secretly divvied up eastern Europe and the Balkans on a piece of paper, placing Greece within Britain’s sphere of influence. While communist leaders also bear responsibility, Churchill’s determination to restore the unpopular Greek monarchy, as well as his determination to exclude former communist partisans from the new Greek army, pushed Greece further down its calamitous path to civil war.

Constantine II (1940–)

Previews - Winter Olympics Day -3

Since Greece became a parliamentary republic in 1974, its former king has had no role in political or public life, to almost universal relief. Assuming the throne at the age of 23, Constantine caused enough damage from 1964 to 1967. Soon, he found himself at loggerheads with the centrist government, led by George Papandreou, who eventually resigned. Constantine then sought to create amenable governments using centrist party defectors, which fuelled a constitutional crisis and political instability that ultimately led to the 1967 military coup.

Georgios Papadopoulos (1919–1999)

George Papadopoulos

The weak state of Greek democracy was dealt a major blow in 1967 when a group of mid-level army officers, led by Colonel Georgios Papadopoulos, staged a successful coup d’état. Seven years of dictatorship followed, during which Papadopoulos himself was deposed in a coup by hardliners. While Papadopoulos would later die in prison, his asinine medical metaphors—he often likened himself to a doctor trying to cure a sick patient (Greece)—were redeployed by advocates of taking a tough line on Greece when crisis struck in 2009.

Andreas Papandreou (1919–1996)

Andreas Papandreou

Greece’s longest serving prime minister since the restoration of democracy in 1974, Andreas Papandreou left an indelible mark on Greek politics and its economy. Over the course of his decade in office (1981–89, 1993–96), the Harvard-trained economist introduced long overdue social and progressive reforms and stacked the civil service with his socialist Pasok party supporters. While he elevated many Greeks to the middle class, that success came at the heavy cost of drastically increasing the budget deficit and public debt levels. As corruption scandals mounted in the late 1980s, Papandreou created a sideshow by ditching his wife in favor of his airhostess mistress.

Kostas Karamanlis (1956–)

Supporters Rally For Greek New Democracy Party

Like many Greek prime ministers, Kostas Karamanlis became leader of the county largely on the strength of his surname – his uncle was prime minister and president at various stages from 1955 to 1995 – and because he promised to  “re-establish” the state. But in his five year tenure (2004–2009), few reforms were enacted, and the government lost control of Greece’s public finances. Had Karamanlis spent less time in front of his Playstation, as is widely rumored, maybe things could have been better. The rocketing budget deficit and debt-to-GDP ratio, which were continuously revised upward during and after his rule, paved the way for the next government to ask for a bailout.

George Papandreou (1952–)

Merkel Holds Talks With Papandreou

Prime minister like his father and grandfather before him, George Papandreou was elected in October 2009 using the vote-catching slogan “there is money,” despite being aware of the county’s dire economic situation. Unable to manage the ensuing fiscal crisis, Papandreou requested a €110 billion bailout deal from European Union and International Monetary Fund six months later. To the disbelief of most Greeks, the oblivious former leader attempted a political comeback in the 2015 election, in which he campaigned on an anti-austerity programme.

Akis Tsoschatzopoulos (1939–)

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Greece would be in a far worse place today had former interior minister Akis Tsochatzopoulos been successful in his bid to become prime minister in 1996. Luckily, he only came within six votes of replacing Andreas Papandreou as leader of the socialist Pasok party. In 2013, a court sentenced Tsochatzopoulos, now 75, to life imprisonment for pocketing €55 million in kickbacks from military procurements from 1996 to 2001, when he was defense minister. His wife, ex-wife, daughter, cousin, and business associates were all implicated in the scandal, most of whom were also jailed.

Greek oligarchs

Luxury expediton motor yatch "Luna" in Bodrum

With legacies extending back decades in cases, Greece’s oligarchs have emerged relatively unscathed from the Greek crisis and continue to control vast wealth, which is largely inherited but also derives from continued interests in shipping, communications, banking, construction and public works. This coterie of powerful Greek businessmen used political connections with former conservative and socialist governments to win contracts and restrict the Greek market. They also own and exert editorial control over most, if not all, of the privately-held media companies, in a country where public broadcasting remains largely under state control. The new Syriza-led government has promised to rein in the oligarchs, but some things are easier said than done.

Petros Kostopoulos (1954–)

Petros Kostopoulos

Businessman and flamboyant publisher Petros Kostopoulos gained fame during the media boom years in the 1990s. He introduced a series of highly popular lifestyle magazines to Athens that sought to break taboos and emulate urban fashions from more affluent western countries. The underlying message in his publications and editorials was one of unbridled consumerism. Cue the multiple credit cards, Cayenne Porsches, skiing holidays, extravagant home loans, and private swimming pools. All these status symbols became more attainable after Greece, one of the poorest countries in the European Union, adopted the euro in 2001, which gave its banks easier access to cheap money.

Nikos Michaloliakos (1957–)

Four MPs From The Far-Right Golden Dawn Party In Court

Relatively unknown until a few years ago, Nikos Michaloliakos and his neo-Nazi Golden Dawn party have capitalized on the Greek crisis to propel them to seats in the Greek and European parliaments. Appearing immune from the police or the justice system, Golden Dawn gangs patrolled inner-city streets, intimidating and sometimes beating migrants and political opponents. Only after a Golden Dawn supporter fatally stabbed the anti-fascist singer Pavlos Fyssas in 2013 did the state react by jailing Michaloliakos and several other Golden Dawn leaders, who will soon go on trial on charges of forming and running a criminal organization.

Troika

A protester shouts slogans during a rally against the government's decision to ask for an economic aid package in Athens

The troika – made up of the European Commission, European Central Bank, and International Monetary Fund – bears a fair share of the blame for Greece’s current state. The troika’s programs are based on over-optimistic growth projections, which have led to a number of revisions to Greece’s debt sustainability. Fiscal austerity has imposed a huge social cost upon the Greek people, pushing people out of work and into poverty, and leaving hundreds of thousands without access to public healthcare.

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Wealth doesn’t trickle down – it just floods offshore, research reveals

Capital flight Illustration: Giulio Frigieri for the Observer (click here for a larger version of this graphic)

A far-reaching new study suggests a staggering $21tn in assets has been lost to global tax havens. If taxed, that could have been enough to put parts of Africa back on its feet – and even solve the euro crisis. The world’s super-rich have taken advantage of lax tax rules to siphon off at least $21 trillion, and possibly as much as $32tn, from their home countries and hide it abroad – a sum larger than the entire American economy.

James Henry, a former chief economist at consultancy McKinsey and an expert on tax havens, has conducted groundbreaking new research for the Tax Justice Network campaign group – sifting through data from the Bank for International Settlements (BIS), the International Monetary Fund (IMF) and private sector analysts to construct an alarming picture that shows capital flooding out of countries across the world and disappearing into the cracks in the financial system.

Comedian Jimmy Carr became the public face of tax-dodging in the UK earlier this year when it emerged that he had made use of a Cayman Islands-based trust to slash his income tax bill.

But the kind of scheme Carr took part in is the tip of the iceberg, according to Henry’s report, entitled The Price of Offshore Revisited. Despite the professed determination of the G20 group of leading economies to tackle tax secrecy, investors in scores of countries – including the US and the UK – are still able to hide some or all of their assets from the taxman.

“This offshore economy is large enough to have a major impact on estimates of inequality of wealth and income; on estimates of national income and debt ratios; and – most importantly – to have very significant negative impacts on the domestic tax bases of ‘source’ countries,” Henry says.

Using the BIS’s measure of “offshore deposits” – cash held outside the depositor’s home country – and scaling it up according to the proportion of their portfolio large investors usually hold in cash, he estimates that between $21tn (£13tn) and $32tn (£20tn) in financial assets has been hidden from the world’s tax authorities.

“These estimates reveal a staggering failure,” says John Christensen of the Tax Justice Network. “Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people.

“This new data shows the exact opposite has happened: for three decades extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich.”

In total, 10 million individuals around the world hold assets offshore, according to Henry’s analysis; but almost half of the minimum estimate of $21tn – $9.8tn – is owned by just 92,000 people. And that does not include the non-financial assets – art, yachts, mansions in Kensington – that many of the world’s movers and shakers like to use as homes for their immense riches.

“If we could figure out how to tax all this offshore wealth without killing the proverbial golden goose, or at least entice its owners to reinvest it back home, this sector of the global underground is easily large enough to make a significant contribution to tax justice, investment and paying the costs of global problems like climate change,” Henry says.

He corroborates his findings by using national accounts to assemble estimates of the cumulative capital flight from more than 130 low- to middle-income countries over almost 40 years, and the returns their wealthy owners are likely to have made from them.

In many cases, , the total worth of these assets far exceeds the value of the overseas debts of the countries they came from.

The struggles of the authorities in Egypt to recover the vast sums hidden abroad by Hosni Mubarak, his family and other cronies during his many years in power have provided a striking recent example of the fact that kleptocratic rulers can use their time to amass immense fortunes while many of their citizens are trapped in poverty.

The world’s poorest countries, particularly in sub-Saharan Africa, have fought long and hard in recent years to receive debt forgiveness from the international community; but this research suggests that in many cases, if they had been able to draw their richest citizens into the tax net, they could have avoided being dragged into indebtedness in the first place. Oil-rich Nigeria has seen more than $300bn spirited away since 1970, for example, while Ivory Coast has lost $141bn.

Assuming that super-rich investors earn a relatively modest 3% a year on their $21tn, taxing that vast wall of money at 30% would generate a very useful $189bn a year – more than rich economies spend on aid to the rest of the world.

The sheer scale of the hidden assets held by the super-rich also suggests that standard measures of inequality, which tend to rely on surveys of household income or wealth in individual countries, radically underestimate the true gap between rich and poor.

Milorad Kovacevic, chief statistician of the UN Development Programme’s Human Development Report, says both the very wealthy and the very poor tend to be excluded from mainstream calculations of inequality.

“People that are in charge of measuring inequality based on survey data know that the both ends of the distribution are underrepresented – or, even better, misrepresented,” he says.

“There is rarely a household from the top 1% earners that participates in the survey. On the other side, the poor people either don’t have addresses to be selected into the sample, or when selected they misquote their earnings – usually biasing them upwards.”

Inequality is widely seen as having increased sharply in many developed countries over the past decade or more – as described in a recent paper from the IMF, which showed marked increases in the so-called Gini coefficient, which economists use to measure how evenly income is shared across societies.

Globalisation has exposed low-skilled workers to competition from cheap economies such as China, while the surging profitability of the financial services industry – and the spread of the big bonus culture before the credit crunch – led to what economists have called a “racing away” at the top of the income scale.

However, Henry’s research suggests that this acknowledged jump in inequality is a dramatic underestimate. Stewart Lansley, author of the recent book The Cost of Inequality, says: “There is absolutely no doubt at all that the statistics on income and wealth at the top understate the problem.”

The surveys that are used to compile the Gini coefficient “simply don’t touch the super-rich,” he says. “You don’t pick up the multimillionaires and billionaires, and even if you do, you can’t pick it up properly.”

In fact, some experts believe the amount of assets being held offshore is so large that accounting for it fully would radically alter the balance of financial power between countries. The French economist Thomas Piketty, an expert on inequality who helps compile the World Top Incomes Database, says research by his colleagues has shown that “the wealth held in tax havens is probably sufficiently substantial to turn Europe into a very large net creditor with respect to the rest of the world.”

In other words, even a solution to the eurozone’s seemingly endless sovereign debt crisis might be within reach – if only Europe’s governments could get a grip on the wallets of their own wealthiest citizens.

Europe’s Debt Problem Has Deeper Roots Than Greece

Greek Prime Minister Alexis Tsipras, center, talks with German Chancellor Angela Merkel and French President Francois Hollande at the start of eurozone leaders' summit on the Greek crisis in Brussels on Sunday.
Greek Prime Minister Alexis Tsipras, center, talks with German Chancellor Angela Merkel and French President Francois Hollande at the start of eurozone leaders’ summit on the Greek crisis in Brussels on Sunday

Currency bloc still searching for lasting solution to high debts. Greece has a deal—or rather, it has a chance to have negotiations on a deal. But Europe still hasn’t found a lasting solution for Greece’s debt burden—a missing piece in the eurozone’s crisis armory.

Greece’s third bailout might run to as much as €86 billion. But to even start talks on that financing, the Greek parliament must pass reams of legislation by Wednesday, including mechanisms for semiautomatic spending cuts if the country fails to hit fiscal targets.

Only emergency bridge financing will prevent a default on the European Central Bank. Greece’s debt, however, remains a problem that hasn’t been fully addressed.

The real issue isn’t the amount of debt, even though Greece’s total debt stood at 177% of gross domestic product in 2014 and it already owes other governments, the International Monetary Fund and the European Central Bank €246 billion, according to Deutsche Bank. It is the constraints the euro places on managing debt.

Europe has ruled out face-value reductions, and even a softening of terms—longer maturities or grace periods—will have to wait until a new program is in place, under way and has undergone a positive first review.

Such measures can be significant, and Greece has already benefited from them, reducing its financing costs. But the sheer scale of Greece’s debt remains a political flash point.

There are usually several ways of attempting to fix a government debt problem, including growth, inflation, austerity, and restructuring. The most palatable is growth: ideally, a country could grow into its debt burden, making it sustainable.

Over time, economic reforms could boost Greece’s growth, and are desperately needed. But this is no quick fix; it involves unpopular political choices.

Inflation is no way out: the European Central Bank’s mandate sees to that. True, inflation dynamics vary from country to country. But for now, it may well be Germany, where government debt is already falling, that sees higher inflation.

That leaves austerity and restructuring. Austerity in small doses is bearable, but has clearly tested political limits in Europe. And restructuring is a costly option for an advanced-economy bloc.

The lesson from Greece is that while eurozone members can force losses on private-sector bondholders, they cannot do the same when it comes to loans from other governments. Indeed, the only way to do so appears to be to leave the euro and default.

An outright reduction in debt would otherwise put the eurozone on the road to a fiscal union that no government or voter has agreed to.

The euro effectively attempts to enforce ascetic virtue on debtors: they cannot devalue or inflate away the value of their debt, so instead they are forced to reform their economies.

The worry is that Greece isn’t the only highly-indebted member of the eurozone; a renewed economic downturn could prove challenging for others.

That might expose further the limitations imposed by the euro. But for now it puts the onus squarely on Greece to reform its economy, and fast.

Greece heads for decisive No vote — Now What?

Alexis Tsipras, Greece's prime minister, exits a polling booth after filling in his voting card in the national referendum in Athens, Greece, on Sunday, July 5, 2015. Greeks are heading to the polls Sunday, evenly split on a referendum to chart a new course in their five-year economic crisis. Photographer: Chris Ratcliffe/Bloomberg *** Local Caption *** Alexis Tsipras
Alexis Tsipras, Greece’s prime minister, exits a polling booth after filling in his voting card in the national referendum in Athens, Greece, on Sunday, July 5, 2015. Greeks are heading to the polls Sunday, evenly split on a referendum to chart a new course in their five-year economic crisis.

Greece’s leftwing government was set for a decisive victory in Sunday’s referendum as voters backed its call to reject a compromise with international creditors, raising serious doubts about the country’s ability to remain inside the eurozone.

With 70 per cent of votes counted, the No camp had won 61.5 per cent and was leading in every region of the country. If confirmed, it will prove a remarkable political exploit by Greek prime minister Alexis Tsipras.

But it is also likely to plunge Greece deeper into turmoil as it tries to prevent the collapse of a financial system that is rapidly running out of cash.

“As of tomorrow, with this brave ‘No’ vote, we will call on our partners to find common ground,” said Yannis Varoufakis, Greek finance minister.

greece

But the response from Berlin was scathing. Sigmar Gabriel, deputy German chancellor, said Mr Tsipras had “torn down the last bridges on which Greece and Europe could have moved towards a compromise”.

“With the rejection of the rules of the euro zone … negotiations about a programme worth billions are barely conceivable,” he told Tagesspiegel newspaper.

“This could mark the point of no return. Greece and the euro have now entered totally uncharted waters,” said Mujtaba Rahman, head of European analysis at the risk consultancy Eurasia Group.

Greece has defaulted on a €1.6bn loan repayment to the International Monetary Fund, becoming the first advanced economy to do so in the institution’s 71-year history

Greek banks are fast running out of cash. The Greek central bank requested further emergency loans for lenders and its governor Yannis Stournaras was due to call European Central Bank president Mario Draghi later on Sunday.

The Greek central bank also called in executives from the lenders to discuss a possible reduction in the daily cash withdrawal limit from €60 to €20.

The ECB governing council is scheduled to hold a conference call on Monday afternoon to decide on more support for Greece’s financial system. The ECB may also choose to step up purchases of eurozone government debt under its quantitative easing programme if markets react badly to the Greek result.

Earlier on Sunday, Mr Tsipras fought through a crowd of at least 100 camera crews packed into a school in central Athens to cast his vote. Addressing the scrum of reporters afterwards, Mr Tsipras said his country had the right to determine its own “destiny” in Europe.

“No one can ignore the will of the people to live, to live with determination, to take their destiny into their own hands,” he said, looking relaxed and smiling in an open-necked white shirt with his sleeves rolled up.

Members of the leftwing Syriza-led government tried to reassure voters on Friday, claiming that banks would reopen by Tuesday regardless of the outcome of the referendum.

But a No vote could mean that negotiations with creditors, which were suspended by Mr Tsipras’s decision to hold the referendum, may not be resumed immediately, if at all.

“A No vote would be a very, very difficult result for Europe,” said Carsten Schneider, budget spokesman for Germany’s Social Democrats. “I don’t know how we can find common ground again.”

French president François Hollande and German chancellor Angela Merkel will hold talks in Paris on Monday evening to discuss their response to the Greek vote.

Emmanuel Macron, French economy minister, said that whatever the outcome of the referendum, talks needed to resume between the debt-laden country and its creditors.

“Even if there is a No vote, our responsibility will be to avoid a Versailles treaty of the eurozone,” Mr Macron said at a conference in Aix-en-Provence, referring to the tough conditions imposed on Germany after it lost the first world war. “If the No wins, it would be a historic mistake to crush the Greek people.”

Even a Yes vote raises many uncertainties, especially if Mr Tsipras remains in office. Many eurozone policy makers now distrust him and doubt whether he would agree to make concessions on tax increases and pension cuts that could split the Syriza party.

Even if there are limits to how much support the ECB can give to the Greek banking system, Benoît Coeuré, a member of its executive board, said it stood ready to do more to support the bloc.

Greek Prime Minister Alexis Tsipras delivers a speech at an anti-austerity rally in Syntagma Square in Athens, Greece, July 3, 2015. Tsipras, elected in January on a promise to end six years of austerity, extolled a packed Syntagma square in central Athens to spurn the tough terms of an aid deal offered by international creditors to keep the country afloat. REUTERS/Alkis Konstantinidis - RTX1IY3E

“If we are needed to do more [to support the eurozone], we will do it,” he told the same conference. “There should be no doubt about that.”

The ECB is expected to front-load asset purchases undertaken as part of its QE should events in Greece drive up yields on the bonds of other eurozone member states.

Jean-Claude Trichet, former ECB president, who was also at the gathering, said there was a real risk of financial contagion, even if it was “relatively small”.

“The probability of a catastrophe for the Greek people is high” in the event of a No vote, Mr Trichet told the Financial Times. A Greek exit could also lead to geopolitical risk with Greece situated in an unstable part of the world, he warned.

Additional reporting by Anne-Sylvaine Chassany and Michael Stothard in Aix-en-Provence, Claire Jones in Frankfurt and Stefan Wagstyl in Berlin

Greek debt crisis: Deal is almost done, says finance minister Varoufakis

Greek Finance Minister Yanis Varoufakis speaks to media earlier in the year.

A bailout deal between Greece and its creditors is almost finalized, Greek Finance Minister Yanis Varoufakis said Friday, hinting that the two sides have been holding private discussions this week.

No matter what the result of Sunday’s referendum, an agreement is “in the offing”, Varoufakis said, speaking on RTE’s “Morning Ireland” radio show on Friday. If Greeks vote “yes”, the government will accept the proposal put forward by its lenders last week, he said, RTE News reported.

“If it is a ‘no’, I can assure you that on this week of impasse, we’ve had some very interesting proposals coming from official Europe confidentially, and a deal is more or less done,” Varoufakis added, the report said.

Greeks go to the polls Sunday to vote in a referendum on whether to accept reform measures put forward by Greece’s international creditors — the International Monetary Fund, the European Central Bank and other eurozone countries — in a bailout proposal last week.

Officials across Europe have characterized the referendum as a vote on whether Greece should stay with the euro, and a “no” result would present the European Union with the biggest challenge in its history. Read: Know this about Sunday’s Greek referendum

Negotiations over Greece’s debt broke down last weekend after the country’s prime minister, Alexis Tsipras, announced the ballot. German Chancellor Angela Merkel and other eurozone leaders have said talks would not resume until after the vote was held.

But in the RTE interview, Varoufakis indicated private discussions had been going on this week.

Varoufakis’s comments contrast with earlier statements from European creditors, who have warned that a “no” outcome would all but scupper a new deal for Greece and would step up the chances of the country leaving the eurozone.

Both sides are waging a war of words to sway Greek voters with less than 48 hours to go until polls open, at 7 a.m. local time, or 12 a.m. Eastern Time.

In an interview late Thursday, Tsipras stepped up his push for a “no” vote, saying that would result in a new bailout agreement within 48 hours.

The tally in the referendum is expected to come in at around 9 p.m. to 11 p.m. local time, or 2 p.m. to 4 p.m. Eastern Time on Sunday.

Soros sees risk of another world war

WASHINGTON (MarketWatch) — Billionaire investor George Soros said flatly that he’s concerned about the possibility of another world war

Much depends on the health of the Chinese economy, Soros said in remarks at a Bretton Woods conference at the World Bank.

If China’s efforts to transition to a domestic-demand led economy from an export engine falter, there is a “likelihood” that China’s rulers would foster an external conflict to keep the country together and hold on to power.

“If there is conflict between China and a military ally of the United States, like Japan, then it is not an exaggeration to say that we are on the threshold of a third world war,” Soros said.

Military spending is on the rise in Russia and China, he said.

To avoid this scenario, Soros called on the U.S. to make a “major concession” and allow China’s currency to join the International Monetary Fund’s basket of currencies. This would make the yuan a potential rival to the dollar as a global reserve currency.

In return, China would have to make similar major concessions to reform its economy, such as accepting the rule of law, Soros said.

Allowing China’s yuan to be a market currency would create “a binding connection” between the two systems.

An agreement along these lines will be difficult to achieve, Soros said, but the alternative is so unpleasant

“Without it, there is a real danger that China will align itself with Russia politically and militarily, and then the threat of third world war becomes real, so it is worth trying.”

Debt talks on hold until Greece agrees reforms, warns Moscovici

An Anti-IMF sign outside the University of Athens

 Greece’s eurozone creditors will not discuss how to get the country’s sovereign debt back on a sustainable path until Athens agrees to a new economic reform programme that would release €7.2bn in desperately needed bailout funds, the EU’s economic chief said on Tuesday.

The talks over the reform programme, which have intensified in recent days, are at the centre of a three-month stalemate between eurozone creditors and the new radical leftist Greek government.

The Syriza administration in Athens has resisted many of the reforms in the existing bailout programme but needs the funding to fill its rapidly dwindling coffers.

Pierre Moscovici, the European commissioner for economic affairs, said debt issues “can only be discussed after we have agreed a reform programme”.

His statement reflects resistance in eurozone capitals to any form of “haircut” on Greek sovereign debt, which is now mostly held by EU governments and institutions.

Mr Moscovici’s comments come as the International Monetary Fund has suggested eurozone creditors may need to write down some of their Greek bailout loans to ensure the country’s debt levels begin to decline more sharply.

Officials involved in the talks said the IMF was not seeking large-scale debt relief immediately. Instead, it was warning that any concessions to Athens that allowed the government to post lower budget surpluses — the likely trajectory of the current talks — would require debt relief to make up the difference.

“Six months ago, we all concluded there was no need for debt relief,” said one senior official. “But if there’s a significant relaxation of the programme [targets], the IMF will want to see some debt relief.”

Without a return to sustainable debt levels — or a larger bailout from the eurozone to ensure Athens can continue to pay its bills — the IMF may be forced under its rules to withhold its share of the current bailout tranche, which amounts to about half of the €7.2bn being negotiated.

Wolfgang Schäuble, the German finance minister, has acknowledged that Poul Thomsen, head of the IMF’s European department, raised the issue of Greece’s mounting debt pile with his fellow eurozone finance ministers during a contentious meeting last month in Riga.

Other officials said Mr Thomsen specifically mentioned the possibility of debt relief during the closed-door session.

Mr Schäuble said that before the recent political turmoil in Athens — triggered in December when the previous government failed to get its presidential candidate chosen, forcing parliamentary elections — Greece was moving “more quickly” than planned to reach the bailout programme’s debt targets. Since January’s parliamentary elections, reaching such targets had become “more difficult”, he added.

Under a November 2012 agreement between Athens and its international creditors, Greece is scheduled to cut its debt levels to 120 per cent of gross domestic product by 2020 and “substantially lower” than 110 per cent by 2022. Debt relief was agreed as a possible way to reach the targets if Greece was able to run a primary budget surplus.

The European Commission’s new economic forecasts, unveiled by Mr Moscovici on Tuesday, showed Greece’s debt levels were rising again amid the renewed financial turmoil.

In February, Brussels forecast Greek debt would fall from 176.2 per cent of GDP in 2014 to 170.2 per cent this year; the new forecasts predict it will rise to 180.2 per cent this year.

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