By Matthew Karnitschnig in Berlin and Gabriele Steinhauser in Brussels
Greece and its creditors veered toward confrontation as its new,
leftist government pledged to make good on promises to reverse
years of public-spending cuts despite warnings from Berlin and
other European capitals that doing so could plunge the country, and
Europe, into deeper crisis.
Europe's political establishment sought to show respect for the
will of the Greek people on Monday while also swiftly moving to
douse hopes in Athens that it would substantially relax the
country's bailout terms, which many Greeks blame for their
economy's deep malaise.
"There are rules, there are agreements," German Finance Minister
Wolfgang Schäuble said of the framework for Greece's financial
rescue. "Whoever understands these things knows the numbers, knows
the situation."
Europe's resolute response is driven in part by concern that
such a step would invite other bailout recipients, including
Portugal and Ireland to demand similar concessions and further
erode the eurozone's credibility.
"If we start playing this game of 'the more radical you are, the
more debt we're going to forgive you,' we're simply opening the
door to have the European Union dismembered," said Esteban Gonzalez
Pons, head of Spain's Popular Party in the European Parliament,
adding that the eurozone was fully prepared to withstand a possible
Greek exit.
Those opposed to relaxing the burden also worry that the
electoral success of the leftist Syriza party, which surpassed many
expectations, could energize other populist movements elsewhere in
Europe.
Fresh from its first-place finish in Sunday's election, Syriza
signaled it would stick to its strong antiausterity approach,
forging a coalition with the Independent Greeks, a small right-wing
party. The two coalition partners have little in common except
opposition to European policies requiring tough fiscal rigor and
sacrifice in exchange for financing to keep the debt-ridden country
solvent.
Alexis Tsipras, the leftist firebrand who was sworn in as
Greece's new prime minister on Monday, said he would give his all
"to protect the interests of the Greek people."
The rhetorical jockeying underscores the challenges facing
European and Greek leaders in the weeks ahead. The gulf between the
new governing coalition and the country's European creditors is so
wide that some policy makers see a Greek exit from the euro as a
possibility in the coming months.
Syriza surged to victory on Sunday by promising Greeks that it
would reverse many of spending cuts and labor-market reforms that
Athens's creditors have demanded of it in return for aid. Mr.
Tsipras also has also called for Greece's creditors--a group that
includes the European Central Bank, other European Union countries
and the International Monetary Fund--to forgive about one-third of
the country's more than EUR300 billion ($338 billion) in debt.
Greece has little time to resolve the impasse. Europe's
participation in Greece's EUR240 billion bailout program expires at
the end of February. To receive the final EUR7.2 billion chunk and
pay the ECB billions of euros in bond redemptions this summer,
Greece must implement further reforms demanded by its so-called
troika of overseers, the European Commission, the ECB and the
IMF.
Both a reversal of Greece's reform agenda and large-scale debt
relief are anathema to Germany and a number of other EU
countries.
Asked in Brussels whether Greece could expect Europe to
restructure its debt, the head of the currency's bloc's conference
of finance ministers, Jeroen Dijsselbloem, was blunt: "I don't
think there is a lot of support for that in the eurozone," he
said.
Mr. Dijsselbloem said the bloc had already acted to relieve the
pressure on Greece by reducing interest on its debt and extending
maturities. Some officials have hinted they might be open to
further interest-rate cuts and repayment extensions but only in
return for continued reforms, a course Syriza has so far
rejected.
Much of Europe's debate over Greece focuses on whether the
country deserves even more leeway than it has already been granted.
Greece's creditors slashed interest rates on their loans to well
below market rates. The interest payments on many of those loans
have been deferred until 2022. In addition, the ECB and national
central banks agreed to return the profits they make on Greek bonds
to Athens, provided the government sticks to its commitments.
Greece's interest burden equaled about 4% of its economic output
in 2014. When adjusting for the profit refunded to Greece and other
measures, however, the interest burden was just 2.6%, according to
researchers at Brussels-based think tank Bruegel. That compares to
4.7% for Italy and 3.3% for Spain.
Bruegel calculated that Greece could reduce its financing needs
by more than EUR30 billion over the next 35 years through a mix of
extending maturities and cutting interest rates on some of its
loans to zero.
Even if Europe would agree to those measures, it is unclear
whether Syriza's supporters would accept any deal that involves
more austerity.
While many Syriza voters say they don't expect the party to make
good on all of its campaign promises, it would nevertheless be
tricky for Syriza's leadership to back away from its core
antiausterity platform.
Yet if it doesn't, Greece would likely be forced to default on
its debt. Such a scenario would force the ECB to choke off the
liquidity it provides Greek banks and the country would likely have
to abandon the euro.
German officials have been particularly insistent that Greece
stick to the program it has agreed to.
"We believe Greece has accepted terms that are not off the table
after the election," German Chancellor Angela Merkel's spokesman,
Steffen Seibert, said in Berlin.
A top European Central Bank official said the bank wasn't
willing to write off any of the Greek debt it holds. "Mr. Tsipras
must pay," ECB executive board member Benoît Coeuré said in an
interview with French radio station Europe1. "If he doesn't pay,
it's a default and it's a violation of the European rules."
Greece owes around EUR40 billion to France and EUR60 billion to
Germany, Mr. Coeuré said. "The debt is owed to taxpayers, not
speculators or financial markets. Canceling that debt would be a
EUR240 billion gift to Greece."
Laurence Norman, Andrea Thomas, David Román and Inti Landauro
contributed to this article.
Write to Matthew Karnitschnig at matthew.karnitschnig@wsj.com,
Gabriele Steinhauser at gabriele.steinhauser@wsj.com and Laurence
Norman at laurence.norman@wsj.com