Amid pressure, bailout critic is new Greek finance minister

AP News
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Posted: Jan 27, 2015 12:18 PM
Amid pressure, bailout critic is new Greek finance minister

ATHENS, Greece (AP) — Greece's new left-wing prime minister, Alexis Tsipras, picked an outspoken bailout critic as his new finance minister Tuesday, signaling his resolve to take a tough line with eurozone lenders in an effort to write off a massive chunk of rescue debt.

Economist Yanis Varoufakis, 53 — who has described the bailout as "fiscal waterboarding" — took up the position amid a rating agency warning of a worsening financial situation that sent the country's stock market sharply lower.

The governing Syriza party on Tuesday announced a Cabinet that includes officials from its coalition ally, the anti-bailout and right-wing Independent Greeks.

Moody's ratings agency described Syriza's election win Sunday as "credit negative," arguing it would prolong risks to financing, economic growth and bank liquidity. The agency said it expected the government's "policy uncertainty" to slash 2015 growth to 1 percent from the 2.9 percent predicted in the state budget.

The main stock index in Athens fell on the news, sliding 5.4 percent before recovering some losses to close down 3.7 percent amid losses across Europe.

Tsipras won a landmark general election victory after campaigning on a pledge to renegotiate the bailout deal and seek forgiveness of more than half the debt — a message that resonated with voters who have suffered through harsh austerity measures that have included pension and salary cuts.

"We are determined to implement our program with courage and determination and not take one step back," said senior Syriza official Dimitris Stratoulis, who was appointed deputy minister for state welfare.

Theodoris Dritsas, incoming deputy minister for marine affairs, said the new government would halt plans to privatize more of the country's main port of Piraeus — despite official interest from six bidders for a two-thirds stake.

"Public ownership of the port will remain. The privatization ... stops here," Dritsas said.

Despite Tsipras' choice of coalition partner, preferring an anti-bailout party with which he has major ideological differences over the centrist Potami, analyst Christian Schulz at Berenberg Bank said pragmatism will probably prevail in Athens before Tsipras' government comes to a head-on collision with Greece's creditors.

"You cannot spend money you do not have, you cannot renege on your contract with your creditors and expect them to simultaneously grant you a big new loan, and you cannot boost growth by scaring businesses away and making your labor market more rigid," Schulz said in a note.

Schulz said the risk of Greece eventually having to leave the euro — turning itself into "a Venezuela without oil or an Argentina without the beef" — has increased from 30 to 35 percent.

"This is not our main scenario," he said. "But it is a serious risk."

The new Cabinet was sworn in Tuesday.

Tsipras chose economist and veteran left-wing politician Giannis Dragasakis as deputy prime minister and expanded powers for the ministries of development, environment, interior and public works — reducing the number of ministries from 19 to 11.

Panos Kammenos, the Independent Greeks leader, was named defense minister.

Finance Minister Varoufakis has been a vocal critic of Greece's bailout agreements, arguing that repayment of the country's huge rescue package loans should be linked to growth, a policy change he argues would benefit eurozone lenders.

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Nicholas Paphitis in Athens contributed.