Germany Digs in Heels on Austerity as Greece Demands End to 'Business As Usual'

As a leaked document on Wednesday suggested the German government is determined to take a hard stance against the new Syriza government, Greece's newly appointed financial minister Yanis Varoufakis declared "business as usual" is no longer an option when it comes to his nation's relationship with European creditors.

Representing the new anti-austerity Syriza government, Varoufakis said he is optimistic that ongoing talks with foreign ministers and Troika representatives--which includes the IMF, the European Central Bank (ECB), and European Commission--will allow Greece to strike a deal after a series of high-level meetings this week.

On Wednesday, Varoufakis met with the head of the European Commission, Jean-Claude Juncker, and Mario Draghi, head of the ECB , as well as his German counterpart Wolfgang Schaueble, to discuss a proposal to link Greece's debt repayments with the country's economic growth.

Ahead of that meeting on Thursday, however, a leaked document revealed that Germany will press the new Greek government to rescind their campaign promises and continue with the Troika's austerity agenda.

The German government document, according to Reuters,

was prepared by Berlin for a meeting of senior euro zone finance officials on Thursday. The officials are to discuss the currency bloc's response to Greek demands for an official debt write-off or restructuring, an end to budget cuts and a reversal of some recent unpopular measures.

The German document stressed that Athens must not roll back any of the cutbacks and reforms made so far in Greece's efforts to improve bloated public finances and regain market trust.

"It is obvious that these suggestions will not be accepted by the Greek government. They are clashing with the recent mandate given by the Greek people and this not help with the growth perspective of Europe," a Greek government official told Reuters.

No More "Business as Usual"

Earlier in the day, Varoufakis told reporters that he and the head of the ECB had a "fruitful exchange."

"We established a line of communication. We outlined to him the main objectives of this government which is to reform Greece in a way that has never been tried before and with a determination that was always absent," he said according to Reuters.

"I presented [Draghi with] our government's utter and unwavering determination that it can't possibly be business as usual in Greece," Varoufakis continued.

In an interview published Wednesday with German newspaper De Zeit, the leftist finance minister accused the Troika of "ruining" his country. "The Troika doesn't have a mandate to negotiate another policy with us. But that does not mean we will no longer work together with our partners," Varoufakis added.

Greece has abandoned demands for a write-off of foreign debt and has instead proposed swapping the outstanding EUR240 billion in bailout debt for growth-linked bonds accompanied by a crackdown on tax evasion and budget surpluses.

Varoufakis said the ECB would be paid back "entirely and by the deadline," while the other debts, to the IMF and other countries, are substituted "with new bonds at market interest, which is very low at the moment, with a clause: we will start the entire repayment once solid growth starts in Greece."

The ECB did not comment on the talks. However, a source "familiar with the Greek position" told Reuters that the country is considering asking for a "bridge program" from its lenders so that it is more likely to qualify for ECB funding.

In the De Zeit interview, Varoufakis called the troika's bailout policies a "huge mistake."

"Greece collapsed under its debts," Varoufakis said. "How did we deal with that? We gave even more loans to an over-indebted state. Imagine one of your friends loses his job and can no longer pay his mortgage. Would you give him another loan so he can make payments on his house? That cannot work. I'm the finance minister of a bankrupt country!"

Economists Weigh In

Noted economists have backed Syriza's attempt to renegotiate.

As Nobel Prize winner Joseph Stiglitz noted in a column earlier this week, despite EU rhetoric and at great cost to their economy, Greece largely succeeded in following the dictate set by the Troika. However, "with the anti-austerity Syriza party's overwhelming election victory, Greek voters have declared that they have had enough."

"Greece has also once again reminded us of how badly the world needs a debt-restructuring framework," Stiglitz writes, adding that their "current plight, including the massive run-up in the debt ratio, is largely the fault of the misguided troika programs foisted on it."

And Dean Baker, co-founder of the Center for Economic and Policy Research, toldDemocracy Now! on Wednesday: "Greece has been in a situation where it's had austerity been imposed on it over the last five years, and its economy has suffered horrendously."

Despite the pressure from Germany, Baker explained that he thinks the new left-leaning government is "being very smart" in their plan to roll-back the austerity reforms, which he says have caused skyrocketing unemployment and a massive drop in the size of the economy.

Baker continued:

[The Greek government is] trying to say, 'OK, we've got to move away from this. You have to give us room to grow.' And they're trying to press the case, with obviously Germany being the main party on the other side, at the end of it--I mean, it's behind the European Union, European Commission, but really it's Germany. And they're hoping to get allies among Spain, Italy, France. They're trying to push that line.

An Economy for Anthoula

Speaking with De Zeit, Varoufakis appealed directly to German citizens.

He said: "Germans have to understand that it doesn't mean we're turning away from the reform path if we give an additional EUR300 a year to a pensioner living on EUR300 a month. When we talk about reforms, we should talk about cartels, about rich Greeks who hardly pay any taxes."

Later, when asked about the Syriza government's plan to rehire thousands of civil servants, and whether the plan will further "bloat" the Greek economy, Varoufakis continued:

We aren't bloating it. If we notice that we have too many people, we will change course and no longer fill positions when they become empty, for example. When I was still working at the University of Athens, there was a cleaning lady there named Anthoula. We often had to work until midnight. Although her workday had ended much earlier, Anthoula cleaned up after us and unlocked the rooms for us the next morning. Guess who was let go first as part of the austerity program? Anthoula.

"The example of Anthoula is emblematic of the situation in Greece," he said, saying the decision by EU reformers to dismiss cleaning ladies "who went home with EUR500 a month" over highly paid consultants "morally reprehensible."

"The reforms have been inefficient and unfair," he said.