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Economic powers warn Greece not to renege on reforms

[ATHENS] Economic powerhouses Germany and China warned Greece on Thursday against reneging on reforms tied to its massive international bailout, with markets still jittery over fears Athens could default on its debt.

Germany, which has shouldered most of the multi-billion-euro EU rescue plan for Greece, said the country's new anti-austerity government could not make changes "to the detriment" of other European citizens.

China, which has a major investment in the main Greek port of Piraeus, said it was "highly concerned" after the government of 40-year-old Prime Minister Alexis Tsipras abandoned plans to privatise the harbour, one of Europe's busiest.

On its first day of business Wednesday, Mr Tsipras' "national salvation" administration rolled back several austerity reforms, including the privatisation of the ports of Piraeus and Thessaloniki, main electricity provider PPC and petroleum refiner HELPE.

Mr Tsipras, leader of the Syriza party which swept to victory in Sunday's election, also underlined his determination to achieve sweeping cut in debts stemming from Greece's 240-billion-euro (US$269 billion) bailout programme.

The announcements sent Greek stocks diving by more than 9.0 per cent on Wednesday, with major banks losing more than a quarter of their value on a turbulent day.

However, the Athens market was up 3.2 per cent on Thursday, with banks jumping 12.59 per cent after reassuring comments from a European Central Bank official.

But London and Frankfurt were both down following declines in Asia over a strengthening dollar and falling oil prices.

European Parliament head Martin Schulz will hold talks with Mr Tsipras on Thursday, the first leading European official to get a closer view of a government determined to reverse many of the unpopular austerity measures that underpin the bailout.

He will be followed on Friday by Jeroen Dijsselbloem, president of the Eurogroup club of eurozone finance ministers.

US President Barack Obama phoned Mr Tsipras on Wednesday to congratulate him on his election victory, but closer to home, the warnings to Athens from its European peers were coming in hard and fast.

"All citizens of Europe must be able to expect that changes in Greek policy will not be made to their detriment," German Vice Chancellor Sigmar Gabriel, who is also economy minister, told parliament.

"Greece must comply with Europe," Jean-Claude Juncker said in an interview with French newspaper Le Figaro. "There is no question of cancelling the debt.

"We respect the popular vote in Greece, but Greece must also respect others, public opinion and parliamentarians from the rest of Europe," Mr Juncker said.

Chinese media, angered by Mr Tsipras' decision on the port privatisation, compared him to the Greek mythological figure of Phaethon, who was given the reins of the sun only to lose control and nearly destroy the earth.

Yields on Greek 10-year bonds rose above the symbolic 10-percent barrier on Wednesday, and ratings agency Standard and Poor's put the country's "B" credit rating on watch for a possible downgrade.

Mr Tsipras, whose Syriza party ousted the conservatives of former prime minister Antonis Samaras, said at his first cabinet meeting that Greece was no longer willing to bow to the "politics of submission", in a clear swipe at creditors the EU and the International Monetary Fund.

"Our people are suffering and demand respect... We must bleed to defend their dignity," Mr Tsipras told his ministers, largely a collection of academics and unionists who have never served in government.

He said he wanted a "fair, mutually beneficial solution" on the bailout.

The new finance minister, maverick economist Yanis Varoufakis, insisted there would be no "showdown" woth the EU, but also called the austerity cuts a "toxic mistake" that ultimately benefited no-one in Europe.

He said the Syriza-led government wanted "a pan-European New Deal" to encourage growth and help the continent deal with Greece's crisis.

Syriza has made frequent references to a "New Deal", harking back to the stimulus programme that pulled the United States out of the Great Depression in the 1930s.

In another measure, newly appointed Labour Minister Panos Skourletis said the minimum monthly wage be would be restored to 751 euros - it had been cut to 589 euros in one of the key reforms demanded in exchange for the bailout.

After Greek banks took a hammering Wednesday - shares in Piraeus Bank lost almost 30 percent - Deputy Prime Minister Giannis Dragasakis said any decision on the sector would be taken in consultation with private shareholders.

Daniele Nouy, head of the ECB Supervisory Board, said despite the post-election turbulence, Greek lenders were capable of surviving.

"The Greek banks are facing a difficult situation right now because of the recent elections, but they are pretty strong," she told Bloomberg Television. "A lot of good work has been done to strengthen their balance sheets during the last years."

In the immediate future, the new coalition must address a pressing end-February deadline set by the EU for Greece to implement more reforms in return for a seven billion euro tranche of financial aid.