February 5, 2015 / 8:04 AM / in 3 years

REUTERS SUMMIT-Greece needs bailout extension to negotiate reforms-EU

BRUSSELS, Feb 5 (Reuters) - Greece can choose how to make its public finances healthy and its economy grow, but it must extend its bailout programme by a few months to gain time to negotiate those steps, European Commission Vice President Valdis Dombrovskis said.

Greece’s bailout from the euro zone runs out at the end of February. Unless it is formally extended, Athens will not receive a final aid tranche of 1.8 billion euros or be eligible to seek a further easing of euro zone loan conditions.

The new government of leftist Prime Minister Alexis Tsipras has so far said it has no intention of requesting an extension and wants to scrap the 240 billion euro bailout programme and the intrusive international supervision that goes with it.

Without some kind of euro zone backing, Athens is unlikely to be able to finance itself on the market at sustainable rates.

Also Greek banks would no longer be able to use Greek government bonds as collateral to borrow money from the central bank and would be reliant on European Central Bank emergency liquidity assistance (ELA) to meet daily needs.

“In the European Commission’s assessment the most realistic way forward is to... extend the duration of the programme for another couple months or half a year, thus allowing also more time for negotiation,” Dombrovskis told the Reuters Euro Zone Summit.

Asked how quickly Greece could run out of money, the commission in charge of the euro zone said he did not want to discuss “what ifs”.

In an interview late on Wednesday, he there was scope to change some measures in the Greek programme to achieve greater social justice, if Athens wanted, provided the alternative steps delivered a comparable fiscal effect.

“But for that we need scope for discussion and that scope is provided by the programme framework,” he said.

Tsipras, whose hard left Syriza party won a stunning victory in a Jan. 25 general election, campaigned on the slogan of ending austerity, reversing some key reforms imposed by Greece’s creditors and writing off some public debt.

In his government’s first week, ministers have announced the halting of some privatisations, plans to raise the minimum wage, the rehiring of laid off public sector workers and the restoration of a Christmas bonus for poor pensioners.

Such moves could bring the opposite of the desired effect, Dombrovskis said, noting the new government’s polices were not in line with commitments made by previous Greek governments.

“It is important... not fall back into financial instability and crisis,” the former Latvian prime minister said.

Tsipras also wants to put an end to quarterly visits by the so-called troika of inspectors from the International Monetary Fund, the European Central Bank and the European Commission, seen by Greeks as a symbol of the loss of economic sovereignty.

Dombrovskis said the troika arrangement could be open to change, but not as a unilateral Greek decision, indicating that international lenders and Athens would need time to come up with an alternative solution. (Additional reporting by Alastair Macdonald and Franceso Guarascio; Editing by Paul Taylor)

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