January 31, 2015 / 10:39 AM / 3 years ago

Greek finance minister seeks support as EU tensions rise

ATHENS (Reuters) - Greek Finance Minister Yanis Varoufakis brought forward a planned meeting with his French counterpart to Sunday, amid signs of widening differences between the new leftwing government in Athens and its international creditors.

A week after Alexis Tsipras swept into office as Greece's youngest prime minister, his government faces growing resistance to its demands to renegotiate bailout arrangements with the European Union and International Monetary Fund.

Hoping to counter implacable opposition from Germany, Tsipras and Varoufakis begin a round of visits next week to London, Paris and Rome to seek backing in other European capitals with time running out before a Feb. 28 deadline when Greece's support program expires.

France and Italy, the two governments that have pushed hardest to loosen the strict budget austerity imposed at the start of the euro zone crisis, may offer Varoufakis and Tsipras a sympathetic ear when they visit.

But they have both said they would not accept the new leftwing government's call for a "haircut", writing down part of Greece's 320 billion euro debt and potentially exposing their own Treasuries to billions of euros of losses.

Varoufakis told the head of the euro zone's finance ministers' group Jeroen Dijsselbloem on Friday that Athens did not want an extension to the bailout but a new accord and would not deal with monitors overseeing the bailout for the EU, European Central Bank and IMF "troika".

On Saturday, he told the weekly Agora newspaper that Greece needs "fiscal breathing space" with a bridging deal of a few weeks while a new agreement with creditors is worked out and economic reforms including a crack down on tax evasion begin.

With both sides keen to prevent tensions during the first few days of the Tsipras government slipping out of control, he warned against "verbal fetishism" and said the differences could be overcome.

While there was resistance in Europe to a straight haircut on the face value of the debt, there was more willingness to explore other options including extending maturities or cutting interest payments that could have the same effect.

"I'm not at all sure that the proposals they are making imply a smaller haircut than what we are proposing," he said.

WARNING ON ECB FUNDING TO BANKS

Highlighting the risks Athens faces if no deal is reached by the Feb. 28 deadline, European Central Bank Governing Council member Erkki Liikanen said Greek banks, already facing serious deposit outflows, would be cut off from ECB lending.

As well as ensuring continued ECB support for the banks, agreement is needed for some 7 billion euros in funds to be released. Without the funds, Greece would probably be unable to meet 10 billion euros in debt repayments that fall due between June and September.

However German Chancellor Angela Merkel repeated that further debt cancellations were unacceptable and Athens would have to respect its obligations.

Varoufakis said Greece would continue to issue new short-term T-Bills while talks proceed, even though Athens has already reached a 15 billion euro issuance limit agreed with the troika.

But that would do little to prevent the crisis that could ensue if the banks lost support from the ECB and the issue is likely to feature heavily in discussions next week. With financial markets on edge, Greek banking stocks have fallen by nearly 40 percent since Sunday's elections. .FTATBNK

Following his finance minister's visit to Paris on Sunday and to London on Monday, Tsipras himself will visit Rome on Tuesday to meet Italian Prime Minister Matteo Renzi and Paris on Wednesday, where he will meet President Francois Hollande.

Notably absent from the list of destinations was Berlin or Frankfurt, although Varoufakis told Agora he looked forward to meeting his German counterpart Wolfgang Schaeuble in the future.

In its first four days in office, the government has announced plans to reinstate thousands of public sector workers laid off under the last government and increase some pensions.

It has also halted asset sales agreed under the bailout at what it says were "fire sale" prices and sacked the heads of the state privatization agency although Varoufakis said the government was keen to attract productive foreign investment.

Asked about whether the government would bring up the issue of Yannis Stournaras, the Bank of Greece governor with whom Syriza has had tense relations in the past, he said: "Of course not. This is not an issue for the Greek government."

($1 = 0.8861 euros)

Reporting by Renee Maltezou; writing by James Mackenzie; Editing by Dominic Evans

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