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2011-06-21 09:31:36
Eurozone finance ministers have postponed their decision on a 12bn-euro ($17bn;
10bn) loan to Greece until it introduces further austerity measures.
The ministers said they expected to pay the latest tranche of a much larger aid
package by mid-July.
But its release depends on the Greek government surviving a vote of confidence
on Tuesday.
Parliament then must also pass 28bn euros worth of new spending cuts and
economic reforms.
This latest tranche - of a 110bn-euro European Union and International Monetary
Fund aid package - is crucial as Greece needs the aid by July to pay off the
creditors of its huge debts.
But there are also practical questions about whether the country can implement
the reforms being demanded in return.
Greeks have already seen wages and pensions cut and there have been regular,
mass demonstrations - even riots - in protest.
Start Quote
Letting Greece default in a disorderly, uncontrolled way would probably be a
good deal worse for the global economy than Lehman's collapse
image of Robert Peston Robert Peston Business editor, BBC News
Peston: Greece is not Europe s Lehman
Commentators: What next for the euro?
The latest public opposition to the cutbacks involves Greek workers at the
state-owned electricity company, who are on the first day of a 48-hour strike.
Privatisation fears
After a seven-hour meeting in Luxembourg that ended early on Monday, the
finance ministers said they would not approve the disbursement to Greece of the
12bn euros (8.7bn euros from eurozone governments and 3.3bn euros from the IMF)
until the country's parliament passed the fiscal strategy and privatisation
laws.
Asked how Greece could privatise a large state-controlled company every 10
days, as the current plans envision, Luxembourg Prime Minister Jean-Claude
Juncker replied: "They will have to do so."
"This is something that affects me greatly," said Mr Juncker, who also chairs
the meetings of the 17 eurozone finance ministers. "You look at the reaction of
the people on the streets. You see they are rebelling."
The EU's economic and monetary affairs commissioner Olli Rehn said he was
"certain that Greece will be able to take the decisions needed because the
alternative is so much worse".
Continue reading the main story
Greek bail-out timeline
May 2010: EU and IMF agree bail-out package to prevent Greece defaulting on its
debts; in return, Greece agrees to make 30bn euros of budget cuts over the next
three years
February 2011: EU and IMF experts tell Greece it must make further cuts to keep
recovery on track
April 2011: EU figures reveal Greek deficit revised up to 10.5% of GDP, worse
than previously thought
May 2011: Greece begins privatisation programme but is warned the IMF may not
release more funds as Athens cannot guarantee it will remain solvent for next
12 months
Q&A: Greek debt crisis
Viewpoint: Politics of Greek crisis
The IMF said in a report that the eurozone's prospects depended on Greece and
other bailed-out members righting their economies.
"A broadly sound recovery continues, but the sovereign crisis in the periphery
threatens to overwhelm this favourable outlook," the body said.
In an effort to get the bills passed in parliament, the Greek prime minister
last week reshuffled his cabinet, including appointing a new finance minister:
Evangelos Venizelos.
"We have plenty to do, on a daily basis," Mr Venizelos said. "The political
time has been compressed a lot. Each day is of extreme importance and hence we
cannot afford to waste a single hour."
The government faces a vote of confidence on Tuesday but opposition parties are
split over how to cut the country's growing budget deficit.
"In light of the government's thin majority of currently only four votes,
support of the Greek parliament for more austerity measures is far from
certain," said Tobias Blattner, a former European Central Bank economist who
works at Daiwa.
New aid
A new bail-out package about the same size as the first was also agreed in
principle by EU finance ministers on Sunday.
The new aid package, to be outlined by early July, will include loans from
other eurozone countries.
It is also expected to feature a voluntary contribution from private investors,
who will be invited to buy up new Greek bonds as old ones mature.
Mr Juncker said that money had to be freely given - or it would be seen as a
technical default on debt repayments: "It is absolutely clear that no pressure
will be put on the financial institutions, so as to avoid a Greek selective
default. Voluntary means voluntary."
If Greece were to default - or seen to be in default - it would mean massive
losses for European banks that hold Greek debt, including the European Central
Bank.
Officials said the new plan was expected to fund Greece into late 2014 and
total about 120bn euros.
Inspectors for the EU and IMF will make another visit to Athens on Tuesday in
what the European Commission said would be a "technical mission".
The visit, which comes after teams from both bodies have spent months poring
through the country's accounts, is unscheduled and the Commission did not say
what its objective would be.
Stock markets and the euro fell early on Monday, pressured by the lack of
resolution to the Greek crisis.
Leading indexes in Frankfurt, Paris and London were all down around 1% and the
euro lost 0.5% against the US dollar in early trading, but stock markets and
the euro later recovered to show only minor falls.