Greece says euro zone deal won time as cash bled from banks

By Reuters

Feb 21, 2015 07:36 AM EST

Greece's left-wing government insisted on Saturday it had avoided being "strangled" by the euro zone, which agreed in principle to extend a financial rescue deal as nervous savers pulled huge sums from Greek banks.

Athens said the deal struck late on Friday in Brussels should calm Greeks who had feared capital controls might be imposed as a prelude to leaving the euro. But some weary voters questioned what their new leaders had achieved in weeks of testy exchanges with euro zone hardliners led by EU paymaster Germany.

After often ill-tempered negotiations, Greece secured late on Friday a four-month extension to euro zone funding, which will avert bankruptcy and a euro exit, provided it comes up with promises of economic reforms by Monday.

"We won time," said government spokesman Gabriel Sakellaridis. "The Greek economy and the Greek government weren't strangled, as was perhaps the original political plan by centers abroad and within the country," he told Mega TV, without naming the euro zone hawks who forced the government into a climbdown at the Brussels talks.

Prime Minister Alexis Tsipras has won wide support at home for what Greeks see as their leaders finally getting tough instead of going to Brussels cap in hand and taking orders from Berlin. But it was also under intense pressure at home.

About 1 billion euros flooded out of Greek bank accounts on Friday, a senior banker told Reuters, due to savers' fears that the talks would fail and Athens might have to halt such withdrawals or prepare to reintroduce a national currency.

This added to an estimated 20 billion euros ($23 billion) that Greeks have withdrawn since December, when it became clear that the radical Syriza party of Tsipras was likely to win power in last month's parliamentary elections.

Faced with the risk of a chaotic bank run on Tuesday after a long holiday weekend, Finance Minister Yanis Varoufakis stressed that the deal should calm savers.

"It is quite clear that the reason why we had a deposit flight was because every day, even before we were elected, Greeks were being told that if we were elected and we stayed in power for more than just a few days the ATMs will cease functioning," he told reporters in Brussels on Friday. "Today's decision puts an end to this fear, to the scaremongering."

Seeking to calm Greeks worried about Monday's public holiday, a source at the European Central Bank said after the Brussels deal that capital controls were out of the question.

Last month's election of Syriza on promises to reverse austerity policies dictated by Greece's EU/IMF bailout program raised huge expectations among the public.

But under Friday's deal with euro zone finance ministers, Athens agreed to an extension of the bailout it had promised to scrap, and accepted oversight by the hated "troika" of officials from the European Commission, European Central Bank and International Monetary Fund, albeit under a new name.

"We went through two months of agony, emptied the banks, to realize we are still a debt colony," 54-year-old electrician Dimitris Kanakis told Reuters. "The paymasters call the shots."

However, the deal did open the possibility of lowering a target for Greece's primary budget surplus, which excludes debt repayments, freeing up funds to ease what Tsipras calls the nation's "humanitarian crisis".

Spokesman Sakellaridis acknowledged that the deal, which is conditional on euro zone ministers accepting Greece's economic reforms plans on Monday, was only a first step. He also admitted the difficulty for a government which is less than a month old in negotiating with heavyweight European ministers.

"These last three weeks were tough weeks for a new government which -- let's not kid ourselves, we're not trying to fool anyone -- hasn't got the relevant experience," he said.

"The real battle begins now," he added. "It is a battle that will be extremely critical for the course of the country over the next few years."

German Finance Minister Wolfgang Schaeuble said Greek politicians used to being in opposition had to wake up to the demands of office.

"Being in government is a date with reality, and reality is often not as nice as a dream," the conservative veteran said, stressing Athens would get no aid payments until its bailout program was properly completed. "The Greeks certainly will have a difficult time to explain the deal to their voters."

Athens must now negotiate a long-term deal with the euro zone before the extension runs out in the early summer.

European Union officials said one reason Greece had to cut a deal now and not delay was that confidential calculations showed the banking system had risked running out of money when it reopens on Tuesday. Extra emergency funding authorized by the ECB on Wednesday would not have been compensated for this.

Tsipras had called for a emergency summit of EU leaders on Sunday if the finance ministers had failed to agree. However, this idea was rejected by European Council President Donald Tusk, increasing pressure for a deal before the banks reopened.

Sources close to the talks said Greece's creditors had lost confidence in Varoufakis and preferred to deal directly with Tsipras. Merkel, who had her first long conversation with Tsipras by phone on Thursday, had been instrumental in ensuring a deal was done, overcoming some resistance from Schaeuble who had taken a hard line from the outset.

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