Merkel hints at Greek debt relief

The first customers, most of them pensioners, enter a branch at the National Bank of Greece headquarters in Athens. Photo / AP

German chancellor suggests more debt relief possible should Greece carry out reforms.

German Chancellor Angela Merkel held out the prospect of limited debt relief as crisis-hit Greece prepares to reopen its banks three weeks after they were shut.

Merkel told German broadcaster ARD that she's prepared to discuss the matter once Greece successfully completes the first round of a new bailout. While the remarks don't go beyond pledges already made by euro-region governments, they signal that the topic could be considered by the end of the year. She ruled out any haircut on Greek debt.

"When the first successful assessment of the programme being negotiated now is completed, exactly this question will be discussed," Merkel said yesterday. "Not now, but then."

Merkel's comments come after a week that saw Greece pull back from the brink of financial collapse. While the bailout agreed upon has split the Government of Prime Minister Alexis Tsipras, it also cleared the European Central Bank to inject more funds into the country's financial system.

That will allow banks to reopen today, although capital controls and limits on withdrawals remain in place. The daily cash withdrawal limit of €60 ($99) will be replaced by a weekly limit of €420, while transfers abroad from Greek accounts remain banned.

The Athens Stock Exchange will stay closed, a spokeswoman said.

Further easing of repayment terms for Greek aid loans has been an option in euro-area negotiations since 2012. Ensuring that Greece's debt is sustainable looms as one of the challenges when talks on the third bailout get under way.

Merkel defended Wolfgang Schaeuble, her Finance Minister, who breached a taboo by floating the idea of suspending Greece from the euro for five years. The proposal was meant to prevent a "catastrophic situation", she said.

She deflected questions about a dispute with Schaeuble, who said in an interview with Der Spiegel published at the weekend that the two had had differences.

Schaeuble said he would quit if he were to conclude that he no longer had a say in Merkel's Government, adding that he wasn't considering such a move.

A woman reacts as she waits on the steps to enter a branch at National Bank of Greece headquarters in Athens. Photo / AP

"I've received no such request for a resignation, and I don't have any intention of continuing this discussion," Merkel said.

"We have work to do."

That work was under way in Athens a week after an all-night summit in Brussels led Tsipras to agree to measures he once decried. On Saturday, he announced plans to rebuild his Government, dismissing Cabinet members in his Syriza party who voted against the package in Greek Parliament.

Sixty-four of the 300 lawmakers voted against the package, half from Syriza, including Yanis Varoufakis, who resigned as Finance Minister this month.

"Tsipras runs the risk of losing control of his party," said George Pagoulatos, a professor at the Athens University of Economics and Business. "His Cabinet reshuffle represents an effort to cement his coalition. It raises the probability of snap elections in early fall."

Greece's financial strain eased after the ECB approved emergency financing and the European Union completed plans for a bridge loan. The stopgap funding will shore up the Greek economy during talks on a full three-year rescue programme worth as much as €86 billion.

Bailout talks need to move swiftly, Merkel said.

She pledged to do "everything" to reach an agreement, adding that her government would act "firmly" to ensure Greece carries out reforms.

While giving a nod toward debt relief, Merkel said Greece's wish to remain inside the euro rules out a "classic haircut, writing down 30 or 40 per cent of the debt", since it violates European law.

"This cannot happen in a currency union. You can have it outside a currency union, but you can't have it in a currency union."