ATHENS, Greece — Hopes for a deal between Greece and its European creditors got a boost after the country's new government backed away from demands to write off a chunk of its bailout loans, a prospect that had horrified creditors and investors.
Greek stocks led a European market rally Tuesday after the finance minister said the new radical left government was willing to accept alternative strategies to making his country's debt load more bearable.
Signs of relief also came from the European Union, where the president of the executive Commission, Jean-Claude Juncker, said the bloc will "have to adapt a certain number of our policies" to accommodate Greece, though it is "not going to change everything."
The Athens stock exchange was up 8.9 percent in midday trading and Greek bond yields eased, a sign investors are less worried about default. The Euro Stoxx index of eurozone stocks gained 1.5 percent.
The Financial Times reported that during a visit to London on Monday, Greek Finance Minister Yanis Varoufakis had backed off the idea of a flat debt write-off. Instead, he suggested exchanging Greece's debt to its bailout creditors with bonds that would be repaid only if Greece's economy grows. He also offered using so-called "perpetual" bonds — which allow issuers to pay interest forever while foregoing the principal.
That would be a less confrontational approach than the eight-day-old government's previous insistence on a write-off, which would have implied a cut in the face value of Greek bonds held by eurozone countries and the European Central Bank.
Historically, creditor countries have often written off debt owed by poorer countries. Greece's case is complicated, however, by the fact that it is part of a currency union — richer countries like Germany do not want to set a precedent for other states that might get into financial trouble.
Elected Jan. 25, Prime Minister Alexis Tsipras' government quickly riled creditors and investors with its insistence on a root-and-branch overhaul of its bailout, including the austerity budget measures that creditors had required. The government quickly froze privatization plans and reversed previous reforms.
"After a very rocky start last week, the new Greek government is faring better this week," Berenberg Bank analyst Holger Schmieding wrote in an email. "The charm offensive of the new finance minister Varoufakis seems to be paying off in financial markets."
The suggested bond swap would considerably ease Greece's debt burden. It would also prove a softer sell to taxpayers in Germany, the Netherlands and others among Greece's European creditors whose governments are aghast at previous calls from Athens for most of its debt to be forgiven.
JPMorgan Chase Bank analyst Malcom Barr said the comments indicate a softening in Greece's position. In particular, the government is admitting it may not deliver on all its pre-election promises.
However, he warned that Greece and its creditors remain far apart.
"On a multiplicity of issues the new Greek administration and most of the rest of the region are a long way apart," he said. "We still find it difficult to believe that the path toward an accommodation between Greece and the rest of the region will be at all smooth."
Greece has to strike a comprehensive deal with its creditors by the end of June, as otherwise it would be unable to repay some 7 billion euros worth of bonds maturing in July and August.
Tsipras and Varoufakis are heading for Italy on Tuesday, for talks with government officials. On Wednesday, Tsipras will meet Juncker in Brussels and then travel to Paris.
Lorne Cook in Brussels contributed to this report.