Europe delays decision on emergency loans to Greece
Euro zone finance ministers postponed a final decision on extending 12 billion euros ($17 billion) in emergency loans to Greece, saying Athens would first have to introduce harsh austerity measures.business Updated: Jun 20, 2011 08:33 IST
Euro zone finance ministers postponed a final decision on extending 12 billion euros ($17 billion) in emergency loans to Greece, saying Athens would first have to introduce harsh austerity measures.
The ministers said they expected the money, the next tranche in a 110 billion euro bailout of Greece by the European Union and the International Monetary Fund, to be paid by mid-July. Greece has said it needs the loans by then to avoid defaulting on its debt.
But keeping up their pressure on Athens, where public opposition to austerity has been growing, the ministers insisted that disbursement would depend on the Greek parliament first passing laws on fiscal reforms and selling off state assets.
"To move to the payment of the next tranche, we need to be sure that the Greek parliament will approve the confidence vote and support the programme, so the decision will be taken at the start of the month of July," said Belgian finance minister Didier Reynders.
The euro fell moderately against the dollar in early Asian trade on Monday because of the delay.
In a statement issued after a seven-hour meeting in Luxembourg that ended in the early hours of Monday morning, the ministers also announced they would put together a second bailout of Greece, which missed debt targets in the first rescue plan by big margins.
The new plan, to be outlined by early July, will include more official loans and, for the first time, a contribution by private investors, who will be expected to maintain their exposure to Greece through voluntary purchases of new bonds as existing ones mature.
The statement did not say how large the new bailout would be, or give details of the private sector contribution beyond describing it as "substantial".
Euro zone official sources have told Reuters the new plan is expected to fund Greece into late 2014 and total about 120 billion euros: up to 60 billion euros of fresh official loans, 30 billion euros from the private sector, and 30 billion euros from Greek privatisation proceeds.
In an attempt to win the cooperation of the European Central Bank, which opposes any scheme that would cause credit rating agencies to declare Greece in default, the ministers said the private sector debt rollover would avoid even a limited or "selective" default. They did not say how this would be managed.
Underlining the extent to which the Greek crisis has become a threat to global stability, Japanese finance minister Yoshihiko Noda said top finance officials of the Group of Seven, which includes the United States, Japan and Canada as well as major European nations, held a teleconference over the weekend to discuss Greece.
On Sunday, Prime Minister George Papandreou asked Greeks to support the austerity steps and avoid a "catastrophic" default. Addressing the Greek parliament, he appealed for the nation to accept deeply unpopular tax hikes, spending cuts and privatisation plans.
"The consequences of a violent bankruptcy or exit from the euro would be immediately catastrophic for households, the banks and the country's credibility," Papandreou said at the start of a confidence debate on his new crisis cabinet.
Facing public protests and dissent in his Socialist party, which has a slim majority in parliament, Papandreou reshuffled his cabinet last week and called a confidence vote for next Tuesday in an effort to push his reforms through the legislature this month.
Political analysts think he is likely to succeed, but public opposition means it is unclear if he can stick to austerity over the long term. More than 10,000 people protested in front of parliament on Sunday, chanting: "We won't pay! We won't pay" and thrusting their open hands forward in a traditional insult.
Opposition leader Antonis Samaras demanded in parliament that Papandreou quit to pave the way for early elections and a renegotiation of the terms of Greece's current bailout.
At 340 billion euros or more than 150 percent of its annual economic output, and still rising, Greece's public debt is so large that many investors think the bailouts envisaged by the EU and the IMF will not succeed -- and that a more radical solution is needed, such as imposing deep losses on its creditors.
The head of Pimco, the world's largest bond fund, said in an interview published on Sunday that Europe risked wasting more money for nothing if it kept pumping billions into the weak Greek economy.
"After a year, every indicator has unfortunately worsened, despite the incredible quantity of financial assistance," Mohammed El-Erian told Italy's Corriere della Sera daily.
"All of this has terrible human consequences and it's associated with a transfer of liabilities from private creditors to European taxpayers. Why? Very little is being done to deal with the excess of public debt, and the conditions for higher growth are not being put in place.
"Further on, if this approach is kept up, more money will be wasted to save private creditors and the risk of a disorderly restructuring of the debt will be greater."