Varoufakis sidelined but Greece still in danger

The Greek Prime Minister might have reshuffled the team handling fraught bailout negotiations, but the move is unlikely to pave the way for a deal.

The Greek Prime Minister might have reshuffled the team which is handling its fraught bailout negotiations, but analysts warned the move was unlikely to pave the way for a much-needed deal.

The changes implemented by Alexis Tsipras Monday were widely seen as a way to push outspoken Greek Finance Minister Yanis Varoufakis to the sidelines.

Over the last few months, Varoufakis has fallen out with Greece's euro zone partners and creditors during negotiations over the country's reform plans and debt repayments. He will now take a less active role in the discussions.

A Marxist economist by trade, the politician caught the media's attention with his blunt criticism of Greece's bailout program and demands for a haircut on the country's debt pile -- which was refused. He has angered his euro zone counterparts in the process, who have described his negotiating style as "insulting" and obstructive .

The straw that broke the camel's back likely came this weekend after yet another meeting of the Eurogroup of euro zone finance ministers. The group failed to reach any kind of deal over reforms, which are required by Greece's lenders before they release a last tranche of bailout aid.

Now, Greek Deputy Foreign Minister, Euclid Tsakalotos - a close Tsipras ally and soft-spoken economist, thought to be liked by euro zone officials - was appointed coordinator of the negotiating group, an official told Reuters Monday.

The news was greeted with cheer by investors, with Greeks stocks rallying and bond yields falling. But some analysts warned that anyone believing the negotiations were about to get easier was sorely mistaken

"This reshuffle of the negotiating team, would appear on the surface, seem like a lack of confidence in the Greek finance minister...but Mr Varoufakis will still be involved behind the scenes, as the tactical game of cat and mouse goes on," Michael Hewson, senior markets analyst at CMC Markets, said in a note Tuesday.

"Despite this rearranging of the deckchairs, nothing much is likely to have changed with respect to overall policy, and it would be naïve to think that it had. In fact, Tsipras went out of his way to back his finance minister last night."

Speaking in a television interview in Greece Monday, Tsipras said he expected a deal with creditors by May 9 . This is just a couple of days before a debt payment to one of Greece's lenders, the International Monetary Fund (IMF), of about 750 million euros ($815.5 million) is due.

Before then the country has other payments to make, including a lesser payment to the IMF and its own domestic wages and pensions bill, which Hewson estimated was around 1 billion euros ($1.08 billion).

Robert Kuenzel, European economist at Daiwa Securities, said in a note Tuesday that there were "many reasons to remain concerned about the prospects for a near-term settlement" and that a deal with its creditors by May 9 was unlikely.

"This timing looks very optimistic: it requires major concessions to be made by Athens very soon, not least with its plans to roll back previous reform achievements in the labour market and pensions areas representing a red line for the Eurogroup and creditor institutions," he said.

Tsipras told Greek TV network Star Monday that he would resort to a referendum on reforms if Greece's lenders continued to insist on demands that the government deemed unacceptable, Reuters reported.

But referendum or none, the Eurogroup was unlikely to give in, according to Kuenzel.

"Although a 'pro-compromise' referendum result could potentially break the current deadlock, Tsipras might instead hope for a 'no-compromise' outturn to reinforce his negotiating position," he said.

"Either way, we think that the Eurogroup won't budge from insisting that the ball remains entirely in Greece's court until end-June. And with reports surfacing this morning of possible shortfalls emerging in the funds available for April's pension and salary payments, we believe that the Greek government cannot afford to maintain its hardline position until then - with or without Varoufakis at the helm."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld



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