Markets rally after Greek government reshuffles negotiating team

Alexis Tsipras has attempted to kick-start talks with creditors, in a move that appears to sideline finance minister Varoufakis

• Summary: Greece shakes up negotiating team
• Greek opposition call for Yanis Varoufakis to quit...
• ...but insiders say he still has Tsipras's support
• Introduction: Another week of Greek drama ahead
• FT: Varoufakis being sidelined

5.46pm BST

Hopes of a breakthrough in Greece's drawn-out talks with its creditors followed news of a restructuring of its negotiating team and sent European shares higher, writes Nick Fletcher.

With finance minister Yanis Varoufakis supposedly sidelined, and reports in Germany's Bild that a new set of - more conciliatory - reforms will be presented this week, investors were prepared to look on the positive side. It was not only shares that benefited; Greek bonds were also on the rise.

4.42pm BST

Now for some slightly negative news from Greece, with the government's call for money from regional institutions not being universally agreed:

Greece's municipalities union says will not transfer money

4.12pm BST

Felix Herrmann, a market strategist at DZ Bank, agrees that the Greek reshuffle has calmed nerves in the markets:

"The Eurogroup meeting in Riga showed Varoufakis was more or less isolated and it seems that Tsipras has understood that.

"The market is a bit relieved...(that) his influence has decreased."

Greece reshuffles negotiating team after Riga debacle http://t.co/tiCnNxKoNr @Reuters ...sidelines Varoufakis by promoting him to supervisor

3.53pm BST

The rally in Greek bonds is picking up pace too, clawing back losses after Friday's Eurogroup debacle.

Greek 2-year yield down nearly 300 bps to 23%.

3.50pm BST

News that Greece is rebooting its negotiating team sparked a new wave optimism across stock markets this afternoon.

Jasper Lawler of CMC Markets explains:

European markets appear to be dusting themselves off from the sharp declines seen in the middle of the month with large gains to start the week. Stalled Greek bailout negotiations have left stocks below record highs but there was a bit more optimism on Monday with Athens seemingly having sidelined its trouble-making finance minister, Yanis Varoufakis.

If the Syriza-led government of Alexis Tsipras want to progress in negotiations and avoid default, it's probably the right move to put its finance minister on the proverbial chopping block. After three months of attempting to reach a better deal for Greece and roll back austerity, Mr Varoufakis has only succeeded in frustrating creditors.

3.49pm BST

More expressions of surprise that the Greek move to reshape its negotiating team has had such a strong reaction in the markets:

Surprised #Greece reshuffle prompted large mrkt shift. Varoufakis already side-lined in Feb, e.g when Tsipras dealt directly w/ Dijsselbloem

Indeed: Varoufakis first sidelined at 2nd Eurogroup meeting in Feb. He's been more figurehead than negotiator since https://t.co/VQysF11SGp

3.34pm BST

Greece's short-term borrowing rates drop after bailout team reshuffle #Greece pic.twitter.com/axKVE6N3YS

2.40pm BST

Eurozone crisis experts are surprised to see the rally in Greek bonds, and European shares generally:

Odd that markets are rallying now that Varoufakis has had his wings clipped. Tsipras was always calling the shots in negotiations.

If you really think that in matters of substance it was down to one person you have barely scratched the surface #Greece

2.25pm BST

Greece has attempted to breath new life into its stalling talks with its creditors, by shaking up its negotiating team.

Alexis Tsipras's government is creating a new "political negotiation team", under junior foreign minister Euclid Tsakalotos, a 55-year-old economics professor.

Today's reshuffling of the #Greece negotiating team further sidelines Varoufakis. New coordinator Tsakalotos is the one to watch now.

Greece's alternate foreign minister, Euclid Tsakalotos, will head a new policy negotiating team, a senior government official said, while the finance ministry's chief economist will lead talks in Brussels with the heads of the country's international creditors - a formation known as the Brussels Group.

Both people are seen as close allies of Greek Prime Minister Alexis Tsipras.

Massive drops in Greek sovereign debt yields as Varoufakis gets wings clipped http://t.co/32E21Xtvtr pic.twitter.com/5Z6yZhaCqm

Markets like the news that Varoufakis is getting reined in. http://t.co/3UDQxSPqzj Bond yields diving pic.twitter.com/MRedzkRcBB

"FDR, 1936: 'they are unanimous in their hate for me; and I welcome their hatred'. A quotation close to my heart (& reality) these days,"....

And 18 other eurozone finance ministers just breathed a big sigh of relief. https://t.co/L61Op7mIie

He has to resign today to make things easier for Mr Tsipras and to liberate him so that it doesn't seem that he is being sacked on the orders of people abroad."

Tonite at 23:30 #Athens time, live @atsipras intvw w/@Star_gr. @enikos_en to provide simultaneous Enlgish translation http://t.co/ryVXqAT6gA

1.28pm BST

Analysts at UBS have outlined two methods by which Greece could leave the eurozone:

(1) The fast route:

A rapid deposit withdrawal from the banking system, if the Eurosystem refused to finance it through expansion of the ELA facility. The government would then need to refinance (and probably recapitalise) the banking system by creating a new currency to do so. However, this could probably be slowed with the imposition of capital controls limiting deposit withdrawal.

The government, running out of funds, could substitute IOUs for euros in some of its payments. Starting with payments to suppliers (including for pharmaceuticals, as in 2011), and then - in theory - progressing on to public sector salaries and pensions over time. As current Greek debt obligations are not valued at their face value by the bond market, nor would these notes be, meaning that their purchasing power would likely be lower than that of the euro. In this way, the parallel currency would already be devalued.

The more of these notes that were issued, the greater the need would be for the banking system to clear payments in them. The need would also increase for businesses and citizens to use them to pay taxes. As this continued, it would be likely that more euros would leak out of the Greek banking system and the economy would rely on the new currency to a greater extent.

1.22pm BST

The word in Athens is that the reshuffled Greek negotiating team will meet tonight, at 6.30pm local time or 4.30pm BST.

The new #Greece negotiating team is convening at 6.30 pm, according to local media #politics #economy

1.12pm BST

Life has been continuing as normal in Athens today, despite growing public concerns over the negotiations with creditors.

12.11pm BST

Over in Berlin, the German government gave Greece the hurry-up this morning.

Finance ministry spokesman Martin Jaeger told reporters that the lack of a credible reform plan is Athens' fault:

"Our goal is to keep Greece in the euro. That's what we are working for intensively. But we have to make it clear once more that the ball is in Greece's court."

"We're waiting for proposals and have been waiting for weeks. It's frustrating but we are patient." (quotes via Reuters)

12.04pm BST

With or without Yanis at the wheel, it will be hard for Greece's government to agree a reform programme that is acceptable to both its lenders and its own left-wing MPs.

#Greece Isakalotos taking the lead & #Varoufakis getting sidelined might soothe creditors, but doesn't necessarily soothe #Syriza's stance.

11.57am BST

Germany's Bild tabloid is reporting that Greece is planning to present a new list of reforms to creditors on Wednesday.

It includes abandoning plans to raise the minimum wage.

Bild kicking off the rumor mill. Says Greece has revised reform list, ready to suspend minimum-wage plans.

Getting there, slowly but surely: - reschuffling of Greek negotiation team - revised reform list, including minimum wage (Bild)

11.45am BST

Italy's economy minister, Pier Carlo Padoan, has denied that the eurozone is now secretly planning for life without Greece.

Padoan told reporters in Rome:

"As far as I'm aware, there is no Plan B on Greece...The aim is to get a rapid accord with Athens."

11.22am BST

Reuters has also been told that Yanis Varoufakis still enjoys the support of PM Tsipras (as flagged earlier)

But despite these signals, Greek negotiating team is being shaken up - giving more responsibility to Euclid Tsakalotos, the government's chief economics spokesman.

Tsipras, in a meeting on Sunday with senior aides and ministers including the deputy prime minister and economy minister, expressed support for Varoufakis and agreed the finance minister will supervise a new group to lead "political talks" with lenders.

However, deputy Foreign Minister Euclid Tsakalotos will be tasked with coordinating the group, the official said, suggesting the Oxford-educated economist and professor would have a more active role in talks with the EU and IMF.

11.01am BST

#Greece | Varoufakis confidant Nikos Theocarakis replaced in Brussels Group with Nikos Houliarakis. A sign of Varoufakis retreat.

11.00am BST

Reports are coming in that Greece's negotiating team is being shaken up:

New political negotiation group for #Greece under the supervision of the greek finmin @yanisvaroufakis

Greek gov't says FinMin Varoufakis to form "political negotiation team" that will be led by Alt Foreign Minister Euclid Tsakalotos #Greece

Despite govt officials backing @yanisvaroufakis, others are being introduced/upgraded in talks process #Greece

10.59am BST

#Greek govt officials spreading the message that @yanisvaroufakis has the full backing of govt

<football manager analogy here> https://t.co/XgR4nr75Dd

10.44am BST

Over in Athens calls are growing for the Greek finance minister's head, after he came away from last Friday's eurogroup with criticism ringing in his ears, and no signs of progress with creditors.

"He has to resign today to make things easier for Mr Tsipras and to liberate him so that it doesn't seem that he is being sacked on the orders of people abroad."

"I am not at all sure that Mr Varoufakis has not adopted the logic of the drachma....Mr Varoufakis is an impediment for Greece."

"Mr Varoufakis will be alright, he will be able to go on and lecture in universities but does he think of ordinary Greeks who do not have such possibilities?".

10.29am BST

10.26am BST

Breaking away from Greece for a moment; Japan has just been hit with a credit rating downgrade.

Fitch cut Japan's rating by one notch, from A+ to A; the sixth-highest credit rating available. It blamed the cut on Tokyo's failure to agree "sufficient structural fiscal measures" in its most recent budget, to make up for delaying a sales tax rise.

Japan's main sovereign credit and rating weakness is the high and rising level of government debt. Fitch projects the gross general government (GG) debt to GDP ratio to rise to 244% of GDP by end-2015, by far the highest ratio of any rated sovereign.

10.11am BST

Jeroen Dijsselbloem has also confirmed that he spoke with Greek PM Tsipras after Friday's Eurogroup dramas in Riga.

Asked by De Volkskrant whether Yanis Varoufakis was the right man to handle the negotiations, Dijsselbloem replied that the issues go beyond Varoufakis's remit:

Yes, it is about the budget and the financial sector but also on privatization, labor market and pensions. So much more than the portfolio of the Minister of Finance.....

In @marcpeeperkorn intvw, @J_Dijsselbloem confirms he called @atsipras after Friday's #eurogroup bust-up in #Riga: http://t.co/fRbmSd9gBR

10.00am BST

Is Yanis Varougakis being painted as the fall guy by eurozone members who have lost patience with Greece?

Alastair Winter, chief economist at investment bank Daniel Stewart's, suspects so. He writes:

It appears that Mr Varoufakis, a renowned exponent of game theory, may have mistaken the game that the Northerners are playing. Encouraged by Messrs Juncker, Draghi, Moscovici and Ms Lagarde, he is playing the game to avoid Grexit. In his post-meeting interviews he said "Any mention of a plan B is profoundly anti-European, My immediate response was to say there is no such plan B, there cannot be such a plan B."

However, the Northerners' game seems more like avoiding getting the blame for Grexit even if they cannot yet agree a Plan B (because of opposition from those encouraging Mr Varoufakis). The Greeks are still holding out for the last a7.2bn tranche from the second bail-out, no more supervision by the lenders and release from most if not all current budgetary and structural reform targets. Once that is out the way, they then will want to talk about a third bail-out.

Wonder if circumventing Varoufakis just another instalment in Northerners trying to escape blame for Grexit while Greece trying to avoid it?

9.49am BST

Good news for readers whose grasp of Greek is as poor as mine; Enikos will translating Alexis Tsipras's interview tonight into English (from 9.30pm UK time, I think)

@graemewearden Simultaneous translation into English for Alexis #Tsipras first live interview -http://t.co/0PrAT10q83

9.42am BST

Eurogroup chief Jeroen Dijsselbloem has told Dutch newspaper De Volkskrant that Greece will not require a "great" new bailout when its existing programme expires.

I'm not going to speculate on the extent, but the amounts are of an entirely different order than the current help.

Dijsselbloem statement is interesting. No 3rd major program for #Greece could mean two things: i) Greece gets dumped ii) debt rescheduling

9.28am BST

I forgot to mention this earlier, but Alexis Tsipras is giving a live TV interview late tonight, to discuss the debt crisis.

Mr. Tsipras will answer questions from leading journalist Nikos Chatzinikolaou and an invited audience on all the critical issues facing Greece and the negotiations with its lenders.

9.22am BST

Greek bonds are weakening this morning, pushing up yields further into the danger zone.

The yields on Greece's two-year bond has jumped to 26.8%, up from 26% on Friday night, showing a higher risk of default.

Peripheral spreads widen as markets prepare for Greek endgame. #Grexit pic.twitter.com/bnCq2fzmWa

9.10am BST

Yanis Varoufakis is making headlines today, but not in the way he'd like:

Everything going well then pic.twitter.com/qA5uzhI7Wc

8.46am BST

Greek worries are pushing Europe's stock markets down in early trading, with France's CAC index losing 1%:

Proposals from Greece do not include important issues such as pension cuts and labour market reforms and are not something the creditors will be able to stomach."

8.36am BST

Lots of chatter about Greece this morning:

#EU hopes to sideline #Greece finance minister and deal directly with PM. Little progress made on bailout, some big repayments due in weeks

Greece to find ways to assemble enough cash to pay pensioners and employees, after euro ministers say no more aid until bailout terms met

#Greece | Brussels Group to hold conference call later today in a revived effort to bridge gap in Greek bailout talks.

8.33am BST

A German government spokesman has confirmed reports that chancellor Merkel spoke with the Greek prime minister by phone yesterday.

"expressed their common will for a steady communication throughout the course of negotiations in order to have a mutually beneficial solution soon"

8.21am BST

The Financial Times is also reporting that Yanis Varoufakis is being sidelined, after last Friday's "highly critical" eurogroup meeting:

Greece's dire financial position is forcing eurozone authorities to look beyond Mr Varoufakis to Alexis Tsipras, prime minister, much like in February when Jeroen Dijsselbloem, the Dutch finance minister who chairs the eurogroup, brokered an extension of the current bailout programme.

According to two eurozone officials, Mr Dijsselbloem phoned Mr Tsipras from Riga in an effort to mend fences after Friday's feisty eurogroup meeting, where Mr Varoufakis was rounded on by his eurozone colleagues.

8.18am BST

Good morning, and welcome to our rolling coverage of events around the world economy, the financial markets, the eurozone and business.

It looks like another week dominated by Greece's debt crisis.

"He is completely isolated," a senior euro zone official told Reuters on condition of anonymity.

"He didn't even come to the dinner to represent his country," the official said of the event where ministers, serenaded by a Latvian choir, ate salmon and sea bass.

FDR, 1936: "They are unanimous in their hate for me; and I welcome their hatred." A quotation close to my heart (& reality) these days

Related: Greek finance minister hints at strained EU relations: 'I welcome their hatred'

Greece has moved somewhat closer to a technical default after the weekend's antics, although it seems the majority of Europe's finance ministers have had about as much as they can take of the Greek finance minister Yanis Varoufakis and will look to deal directly with top dog Alexis Tsipras from here on in.