Merkel says Greece isolated on diplomatic push to ease debt load

[BERLIN] German Chancellor Angela Merkel indicated that a diplomatic offensive by newly elected Greek Prime Minister Alexis Tsipras to ease his nation's bailout-aid requirements is failing to win over converts.

"I don't think that the positions of the member states within the euro area with regard to Greece differ, at least in terms of substance," Ms Merkel told reporters in Berlin.

Later in Paris, Mr Tsipras was told by French President Francois Hollande that "respecting the rules is necessary for all, for France too, and it's not always easy."

While Mr Tsipras has retreated from demands for a writedown of Greece's debt, yielding to virtually unanimous opposition in the 19-member bloc, his pledge to increase spending threatens to collide with conditions of aid commitments totaling 240 billion euros (US$275 billion).

Mr Tsipras and his finance chief, Yanis Varoufakis, fanned out this week across Europe after their Syriza party's anti- austerity campaign swept them into office, upending Greece's political establishment. Their demands for overhauling the terms of Greece's bailout package have been met with resistance and alarm in Berlin and Brussels.

"We're not a threat to Europe," Mr Tsipras said at the press conference with Mr Hollande. "We're proposing mutually acceptable, viable solutions on the debt question."

Mr Varoufakis met on Wednesday with European Central Bank President Mario Draghi in Frankfurt, where he said he had "very fruitful" talks over the ECB's support of the Greek banking system.

Calling himself "the finance minister of a bankrupt country," Mr Varoufakis sought support in Paris, London and Rome before venturing into more hostile territory. He'll sit down tomorrow with German Finance Minister Wolfgang Schaeuble.

Ms Merkel said she's "looking forward" to meeting Mr Tsipras at a meeting of the European Union's 28 members on Feb 12 in Brussels, and that she's already spoken to Mr Hollande and Italian Prime Minister Matteo Renzi regarding the euro area's position on Greece.

Ms Merkel's Christian Democratic-led bloc in parliament has agreed not to relent to Greek pressure for any "bad compromise" that "defacto adds up to a debt writedown," Hans-Peter Friedrich, a deputy leader of the caucus, said in an interview on Wednesday.

"Greece, not Germany, is under time pressure," Mr Friedrich said, citing the Greek government's cash requirements following the end of the current round of bailout funding at the end of the month.

Mr Tsipras and Mr Varoufakis "aren't in a position to make demands, let alone try blackmailing tactics," he said.

German Finance Ministry spokesman Martin Jaeger ruled out Greece's request for a debt conference as well as a writedown.

The International Monetary Fund, one of Greece's creditors, said there's been no discussion with the government in Athens on a change to its framework.

While conceding that an overall writedown isn't likely, Mr Varoufakis made a pitch to the German public, telling Die Zeit newspaper that it'll cost less to lighten Greece's debt load now than to force compliance with conditions of its bailout.

Germany "will pay even more if we don't solve the debt problem," Mr Varoufakis said. "Only then will we be able to pay back the money that was lent to us."

Greece's burden can be eased without scaling back its outstanding debt, Mr Varoufakis told the newspaper, repeating his call Monday in a meeting with investors in London for bonds linked to economic growth.

Investor concern over renewed market convulsions were underscored by a slump in demand for Greek Treasury bills.

Greece sold 812.5 million euros (US$930.3 million) of bills maturing on Aug 7, with an average yield of 2.75 per cent, the Athens-based Public Debt Management Agency said. The bid-to-cover ratio, which is a gauge of demand, fell to 1.3, the lowest since July 2006. Greece has 947 million euros of debt coming due on Feb 6.

The benchmark Athens Stock Exchange retreated as much as 2.6 per cent before rebounding and closing for the day up 0.9 per cent. The yield on 10-year government bonds rose 28 basis points to 9.8 per cent.

Mr Varoufakis said he was encouraged after making his case to Mr Draghi.

"We established an excellent line of communication that gives me a great encouragement for the future," Mr Varoufakis said at ECB headquarters in Frankfurt after the meeting.

"I am now proceeding to Berlin where I am extremely eager to meet not with just the finance Minister but with the intellectual force behind the project of European monetary union, Mr Schaeuble. I look forward to it."

BLOOMBERG