Greece moves to sideline Varoufakis after reform talks fiasco

(Reuters) By Renee Maltezou and Deepa Babington

Greek Prime Minister Alexis Tsipras (pictured) on Monday (27 April) reshuffled his team handling talks with European and IMF lenders, a move widely seen as an effort to relegate embattled Finance Minister Yanis Varoufakis to a less active role in negotiations.

An anti-austerity economist who has angered peers with his brash style, Varoufakis is facing calls to quit after returning from a meeting of euro zone finance ministers in Riga isolated and empty-handed while Athens scrambles to avoid bankruptcy.

Tsipras and senior aides publicly voiced support for Varoufakis at a meeting on Sunday and agreed the finance minister would supervise a new team negotiating a reforms deal with lenders, a government official said.

But Deputy Foreign Minister Euclid Tsakalotos - a close Tsipras ally and soft-spoken economist liked by officials representing creditors - was appointed coordinator of the group, the official said. This would elevate him from his current position and give him a more active role in the negotiations, pushing Varoufakis to the sidelines.

The latest developments suggested Tsipras was ramping up efforts to ease tensions with lenders and strike a deal to unlock aid so Greece can avoid defaulting on payments, which could force it out of the 19-nation euro zone.

The news spurred a rally in Greek stocks and bonds. Greek two-year bond yields fell 250 basis points to a two-week low of 23.55 percent, reversing an earlier rise. Athens stocks rose 4 percent while Greek bank shares jumped 9 percent.

"We are constantly making improvements to coordinate in a better way and have a more effective stance, because this is what people, the times and the negotiations demand," Tsakalotos told lawmakers. "We are learning from our mistakes."

Later on Monday, the government said it was preparing a bill to legislate reforms already presented to the lenders, in an effort to inject new momentum into the slow negotiations.

"If the bill is voted, it could be the basis for an interim agreement," Varoufakis told reporters. "We are doing everything to achieve an honorable deal."

Eurozone officials welcomed the reshuffle and the apparent effort to reduce Varoufakis' role in negotiations with them.

"The way he behaved made him an additional obstacle in the negotiations with Greece," said a eurozone official, who asked not to be identified.

"By diminishing his role, from the main contact person to one of the persons, removes the obstacle. It has become almost personal for some in the Eurogroup."

Another eurozone official questioned whether the move would bring about the substantive change lenders have been demanding.

'I welcome their hatred'

Varoufakis, who became an instant celebrity in the early days of the Tsipras government with his tie-less look and blunt attack on austerity policies, has seen his star wane in recent weeks and critics have called him a liability in the talks.

At Riga on Friday, he was sharply criticized by fellow euro zone finance ministers for both his lecturing style and failure to produce reforms demanded by lenders.

He was later taken to task by the media after he failed to appear at a state dinner after the meeting. He responded by tweeting a quotation by former U.S. president Franklin Roosevelt which read: "They are unanimous in their hate for me; and I welcome their hatred."

In another move hinting at a less prominent role for Varoufakis, his general secretary, Nikos Theocharakis, who had been leading technical-level talks with the so-called Brussels Group of lenders, will now focus on drawing up a plan for growth to be the basis for a new deal with lenders in June.

George Chouliarakis, considered close to powerful deputy Prime Minister Yannis Dragasakis, will take over responsibility for talks with the Brussels group.

In an effort to show that Athens is serious about giving lenders access to data, a new team was also set up to support EU and IMF officials gathering information in the Greek capital.

(Additional reporting by Jan Strupczewski in Brussels and Gernot Heller)

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