Greek PM sets up another EU clash, refuses bailout extension

ATHENS — Greece's new leftist prime minister, Alexis Tsipras, said on Sunday he would not accept an extension to Greece's current bailout, setting up a clash with European Union (EU) leaders, who want him to do just that, at a summit on Thursday.

Tsipras also pledged his government would heal the "wounds" of austerity, sticking to campaign pledges of giving free food and electricity to those who had suffered, and reinstating civil servants who had been fired as part of bailout austerity conditions.

In his first major speech to parliament as premier, the prime minister said he was still optimistic he could reach agreement with Greece's EU partners on a new debt pact and transitional agreement.

"The bailout failed," he said. "The new government is not justified in asking for an extension... because it cannot ask for an extension of mistakes."

Tsipras's speech will have been closely watched by EU leaders who, to date, have shown scant willingness to meet Tsipras's demands, fearing a wholesale backtracking on the fiscal and economic reforms international lenders have demanded in exchange for some 240 billion euros worth of assistance.

Greeks have been severely hit by the austerity imposed on them by the "troika" of European Central Bank (ECB), International Monetary Fund and European Commission lenders. The country is only just coming out of years of economic depression, but roughly one in four Greeks are unemployed.

"The first priority of this government ... is tackling the big wounds of the bailout, tackling the humanitarian crisis just as we promised to do before the elections," Tsipras said.

He added that the main battle would be against corruption and vowed to tackle Greece's long-time struggle with tax evasion.

He also announced a series of cuts to politicians' benefits such as banning ministerial cars and selling one of the prime minister's aircraft.

Tsipras said he would also end property tax and replace it with a tax on high-value property.

Plan for change 

Over the past week, Greek officials have laid out what they see as a transitional plan to keep finances flowing over the next few months while they renegotiate their debt agreement.

Instead of the next tranche of bailout funds, 7.2 billion euros, due pending a suspended review, Greece's new government wants the right to issue more short-term debt beyond a current 15 billion euros threshold. 

It also wants 1.9 billion euros in profits from Greek bonds held by the ECB and other eurozone authorities, something that was agreed previously.

With that as a bridge, Greek officials would then try to renegotiate payment of Greek sovereign bond debt, perhaps by extending payments, only paying interest and getting some respite on the budget surplus it is expected to run.

One government official suggested that not everything had to happen at once.

"The pace of the implementation of our promises is 'within four years'," the official said.

Separately, Greek Finance Minister Yanis Varoufakis said on Sunday that if Greece is forced out of the eurozone, other countries will inevitably follow and the currency bloc will collapse, in comments which drew a rebuke from Italy.

In an interview with Italian state television network RAI, Varoufakis said Greece's debt problems must be solved as part of a rejection of austerity policies for the eurozone as a whole. 

He called for a massive "new deal" investment programme funded by the European Investment Bank.

"The euro is fragile, it's like building a castle of cards, if you take out the Greek card the others will collapse." Varoufakis said according to an Italian transcript of the interview released by RAI ahead of broadcast.

The eurozone faces a risk of fragmentation and "de-construction" unless it faces up to the fact that Greece, and not only Greece, is unable to pay back its debt under the current terms, Varoufakis added.

"I would warn anyone who is considering strategically amputating Greece from Europe because this is very dangerous," he continued. "Who will be next after us? Portugal? What will happen when Italy discovers it is impossible to remain inside the straitjacket of austerity?"

Varoufakis and Tsipras received friendly words but no support for debt re-negotiation from their Italian counterparts when they visited Rome last week. But Varoufakis said things were different behind the scenes.

"Italian officials, I can't tell you from which big institution, approached me to tell me they backed us but they can't tell the truth because Italy also risks bankruptcy and they are afraid of the reaction from Germany," he said.

"Let's face it, Italy's debt situation is unsustainable," he added, a comment that drew a sharp response from Italian Economy Minister Pier Carlo Padoan, who said in a tweet that Italy's debt was "solid and sustainable”.

Varoufakis's remarks were "out of place", Padoan added, noting that Italy was working for a European solution to Greece's problems, which requires "mutual trust".

Italy's public debt is the largest in the eurozone after Greece's and Italian bond yields surged in 2011 at the height of the eurozone crisis. They have since fallen steeply and have so far come under little pressure from the renewed tensions in Greece.

Varoufakis said his government would propose a "new deal"  for Europe like the one enacted in the United States in the 1930s. This would involve the European Investment Bank investing ten times as much as it has so far, Varoufakis indicated.

If Europe continues to pursue counterproductive austerity policies the only people who will benefit will be "those who hate European democracy", he added, citing the Golden Dawn Party in Greece, the National Front in France and the United Kingdom Independence Party in Britain.

According to Alan Greenspan, the former head of the United States central bank, Greece will have to leave the eurozone sooner or later.

"It is a crisis and I don't see it being resolved easily, in fact I don't see it being resolved without Greece leaving the eurozone," the former chairman of the US Federal Reserve told BBC radio.

"I don't see that it helps them to be in the euro and I certainly don't see how it helps the rest of the eurozone. And I think it's just a matter of time before everyone realises that parting is the best strategy."

Greenspan, who was head of the Federal Reserve from 1987 to 2006, said that the eurozone could not continue in its current form without political integration.