Europe warns Greece's Syriza to stick to austerity

Greece's new prime minister, Mr Alexis Tsipras, leaving the presidential palace after the swearing-in ceremony in Athens on Jan 26, 2015. -- PHOTO: AFP
Greece's new prime minister, Mr Alexis Tsipras, leaving the presidential palace after the swearing-in ceremony in Athens on Jan 26, 2015. -- PHOTO: AFP

BRUSSELS (AFP) - The EU issued on Monday a stern warning to Greece that its place in the euro zone was at risk if new Prime Minister Alexis Tsipras failed to meet the country's austerity and debt commitments.

From Brussels to Berlin, officials said they were ready to talk to the new government led by Mr Tsipras' radical left party Syriza, but insisted that Athens must stick to existing agreements with its international creditors.

Euro zone finance ministers met in Brussels a day after Syriza stormed to election victory on the back of Mr Tsipras' promises to end "disastrous austerity" and seek a cancellation of Greek debt.

"Membership of the eurozone means that you comply with everything you have agreed with," said Eurogroup head Jeroen Dijsselbloem, adding that "on that basis, we're ready to work with them."

The Dutch finance minister did not rule out steps to help Greece - such as extending debt repayment deadlines or reducing interest rates - so long as the new government stuck to the austerity measures it had agreed with the EU and IMF since 2010.

But he dismissed suggestions that the EU could erase some of the debts that Greece incurred under the massive 240 billion euro (S$363.5 billion) international bailouts it received, as Mr Tsipras has demanded.

"Writing off debt in nominal value, I don't think there's a lot of support for that within the euro zone," Mr Dijsselbloem said.

"The Greek people have to realise that the major problems of the Greek economy have not disappeared ... for the simple fact that an election took place," he added.

The mere fact that Mr Dijsselbloem brought up Greece's place in the 19-country euro zone will stoke fears about the effect of a Syriza win for the single currency, which traded at an 11-year low versus the dollar on Monday.

Syriza's stunning victory also has political implications beyond Greece, boosting anti-austerity movements across Europe, especially Spain's Podemos, which is hoping for a similar general election win this year.

In Germany - the paymaster of the euro zone bailouts, where resistance runs deep to any attempts to abandon belt-tightening - Chancellor Angela Merkel's spokesman took a similar line on what Europe expected.

"In our view it is important for the new government to take action to foster Greece's continued economic recovery," spokesman Steffen Seibert told reporters. "That also means Greece sticking to its previous commitments."

Hawkish Finland also ruled out any write-off of Greek debt.

"Finland will not accept a demand for debt cancellation," Prime Minister Alex Stubb said.

European Commission chief Jean-Claude Juncker said that the EU would "work closely" with Greece, adding that he was not "particularly nervous".

Despite the rhetoric, Brussels is nevertheless set for a "tense" few weeks to come in its negotiations with Athens, a top European official said on condition of anonymity.

Mr Tsipras is set to meet other European leaders for the first time as prime minister at a summit on February 12, where Greece's place in the euro zone and unsustainable debt levels are likely to be key issues.

Some believe that the 28-nation EU will be forced to reach some kind of deal in order to avoid Greece becoming the first country to crash out of the euro since its launch 15 years ago - a scenario dubbed the "Grexit".

"We will not escape a re-negotiation (of the bailout)," another European source told AFP on Sunday.

However, Germany's European Parliament President Martin Schulz told German radio that the EU held the cards, not Mr Tspiras, "and he knows it".

"He's a pragmatist. He will have to find a compromise with his European partners," said Mr Schulz.

Analysts said the negotiations would be finely balanced.

Refusing to reduce Greece's debt would "condemn Greece to several difficult years and encourage extremist political movements... that could strongly shake up the euro zone as a whole", argued Mr Paul De Grauwe of the London School of Economics.

Dr Merkel and Syriza are on track "for an exciting game of poker", said Mr Julian Rappold, an expert on European politics at the German Council on Foreign Relations think-tank, adding that Mr Tsipras' victory could have wider European repercussions.