Some afternoon reading...

Open Europe analyst Vincenzo Scarpetta argues today that Greece still faces some crucial unanswered questions about its strategy to escape its debt trap:

• Will other Eurozone countries and the IMF agree to the bond swap? It will mostly depend on how the mechanism envisaged by Varoufakis works in practice. If, for instance, the repayment of the new bonds is linked to nominal GDP growth and the targets are too ambitious – especially since Greece is currently in a deflation – would creditors see it as a write-down in all but name?+

• Will SYRIZA stick to its guns and refuse to extend Greece’s bailout programme? It’s too early to tell, but this is a fundamental point – especially since the ECB has said it would cut off liquidity to Greek banks unless the Greek government agrees to extend the programme, with all the conditions attached, beyond the 28 February deadline.

While Sony Kapoor of ReDefine reckons we should cut Syriza some slack:

Despite several unsubstantiated rumours and sometimes deliberate, attempts to discredit a popular new government, Syriza has done a fairly decent job despite having no previous experience of governing whatsoever. It has not stepped on any nuclear mines, nor done irreparable harm to either its domestic or international standing. Yes it has had a somewhat rocky start but that was to be expected in such turbulent times and stressed conditions.

Syriza has done the Eurozone a great service by finally forcing it to start a debate on a number of critical issues that Frau Merkel, dubbed by the Economist as the West’s “greatest ditherer”, has so far declined to discuss.....

Alexis Tsipras and Francois Hollande are holding a press conference now:

Tsipras is repeating some of the point he’s made in earlier meetings -- that Greece needs growth, not austerity, and that he wants a deal that helps all of Europe.

My government is an opportunity for Europe to move forwards, not a threat, he insists.

• GREECE’S TSIPRAS, AFTER TALKS IN PARIS WITH HOLLANDE, SAYS CHANGE OF POLICY TOWARDS GROWTH IS NEEDED FOR STABILITY OF EU
• TSIPRAS SAYS FRANCE MUST PLAY KEY ROLE IN THIS CHANGE OF POLICY
• TSIPRAS - NEW GREEK GOVT IS NOT A THREAT TO EUROPE, IS AN OPPORTUNITY
• TSIPRAS - WE HAVE MADE “REALISTIC” PROPOSALS THAT CAN LEAD TO AN AGREEMENT

Hollande is also speaking, expressing sympathy with Greece but also talking about sticking to the rules.

A confidential document has dropped into Reuters’ clutches, showing that Germany is refusing to accept Alexis Tsipras’s demands.

The document was drawn up ready for a meeting of senior eurozone finance officials on Thursday. It outlines that Berlin will not tolerate any ‘rolling back’ of the existing austerity, despite Syriza’s victory in last month’s general election.

Reuters says:

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.....

“The Eurogroup needs a clear and front-loaded commitment by Greece to ensure full implementation of key reform measures necessary to keep the programme on track,” the German document said, referring to euro zone finance ministers.

“The aim is the perpetuation of the agreed reform agenda (no roll back of measures), covering major areas as the revenue administration, taxation, public financial management, privatisation, public administration, health care, pensions, social welfare, education and the fight against corruption.”

Here’s the official statement from European Council chief Donald Tusk, warning of difficult negotiations ahead:

I was pleased to welcome Greece’s new Prime Minister Alexis Tsipras in Brussels today. Our talks were open and frank on a number of issues of common concern.

As regards European financial assistance to Greece, I stressed the need to find a solution acceptable to all Member States involved in the negotiations. Those negotiations will take place in the euro group. They will be difficult, will require cooperation and dialogue as well as determined efforts by Greece.

We agreed on the importance of unity within the European Union with regard to other key challenges facing Europe.

Heads-up: Greece’s prime minister is giving a press conference in Brussels now.

Alexis Tsipras says that Greece doesn’t have a deal yet, but reckons “we are moving in the right direction”

He says “We have the will to work to find a mutually acceptable compromise with the EU”, and promises to respect European rules.

More to follow....

Yanis Varoufakis struck an optimistic tone after his meeting with Mario Draghi.

The Greek finance minister told reporters shivering outside the ECB headquarters that he believes discussions with international lenders can be concluded quickly.

Varoufakis said:

“The ECB is the central bank of Greece ... The ECB will do whatever it takes to support the member states in the euro zone.”

“I have no doubt that we can conclude our discussions with our European partners, as well as with the IMF and the ECB, in a very short space of time so that we can kick-start the Greek economy.”

(quotes via Reuters)

Tomorrow’s meeting with Germany’s finance chief Wolfgang Schäuble will be a big test, though. The suspicion is that Berlin will want to play a long game with Greece, and see signs of economic reform before loosening the ties of austerity.

Newsflashes from Frankfurt -- Yanis Varoufakis is telling reporters that he had a ‘fruitful’ meeting with ECB Mario Draghi.

He also said he is “eager” to meet with Germany’s finance minister, Wolfgang Schäuble, tomorrow.

Jim O’Neill, the UK economist who invented the idea of the BRICs economies, is optimistic that the worst of the Greek crisis is over.

He’s on Bloomberg TV now, predicting that:

Some time in the last week a decision has been taken that Greece is going to stay in the eurozone -- so there’s going to be a deal.

That’s his hunch, rather than any inside information.

O’Neill argues that it’s “just stupid” to think that Greece could repay a debt that equals 175% of its GDP. And it “doesn’t make sense” to imagine that Germany will allow a bank run in Greece, or the break-up of European Monetary Union.

Back to Greece....and Yanis Varoufakis has revealed that Athens has opened talks with the IMF over his debt swap proposal.

Reuters has the details:

Greece has started negotiations with the International Monetary Fund over its plan to swap existing government debt for growth-linked bonds, finance minister Yanis Varoufakis told Italian newspaper La Repubblica in an interview published on Wednesday.

Varoufakis also said he was optimistic that the Greek debt problem would be solved and had received good feedback during meetings with financiers in London on Monday.

The FT also reports that the meeting between the left-wing economist and City investors at the Four Seasons Hotel on London’s Park Lane went surprisingly well.

The investor presentation, organised jointly by Deutsche Bank and Bank of America Merrill Lynch, was followed by a series of more informal conversations with small groups of investors.

“He made a real effort,” said one banker. “He stayed back to talk to investors. That went down well.”

It’s all go this morning. Greek prime minister Alexis Tsipras has just shaken hands with Commission chief Jean-Claude Juncker in Brussels.

The pair smiled for the cameras, but they look pretty tense...

It’s disappointing that Tsipras hasn’t given his new tie a run-out -- clearly he’s saving it until Greece has a debt deal.

The Greek stock market has just fallen 1% at the start of trading in Athens, mirroring the decline in bond prices.

Not really a surprise – yesterday the ATG index surged by a remarkable 11%, on optimism over Greece’s debt swap plan. Even though it’s not been agreed by the main powerbrokers in Europe, or even discussed with them...

Good morning.

The master of game theory is taking on the poker-faced saviour of the euro today, as Greece’s battle for a new debt deal reaches Germany.

Finance minister Yanis Varoufakis will meet with Mario Draghi this morning, in Frankfurt. The former economics professor will be pushing his plan to swap some Greek debt for new bonds linked to growth, to help Greece break its “debt addiction”.

Varoufakis is reluctant to give full detail of his plan, telling reporters in Rome yesterday that:

“This is not the time for financial-engineering lectures”.

But he’ll need to play his cards like a pro against Draghi, in perhaps the most serious test of the eurozone since the ECB president pledged to do “whatever it takes” to protect the single currency.

The ECB holds a lot of power over Greece, and it intends to use it. Last night, it emerged that the Bank would block Greece’s application to borrow an extra €10bn in short-term loans to tide it over.

As the FT reported,

“The Greek plan relies fully on the ECB,” said another eurozone official briefed on the talks. “The ECB will play hardball.”

The ECB also has the power to pull the plug on Greece’s banks, by cutting them out of its liquidity programme on 1 March if there isn’t a bailout deal. That would be a nuclear decision – not one Draghi would take lightly – but it’s on the table.

We’ll be tracking the action in Frankfurt, and other events across the financial markets, the world economy and business through the day....