Euro zone finance ministers agreed last night to disburse a further €12 billion to Greece and said the details of a second aid package for Athens would be finalised by mid-September.
After a conference call, the 17 euro zone ministers - including Minister for Finance Michael Noonan - agreed that the fifth tranche of the €110 billion bailout agreed with Greece in May 2010 would be paid by July 15th, as long as the IMF's board signs off on the disbursement. The IMF is expected to meet on July 8th to approve it.
The payment will allow Greece to avoid the immediate threat of default, but the country still needs a second rescue package, which is also expected to total some €110 billion and which will now likely only be finalised in September.
Between now and then, finance ministers will work on the "precise modalities and scale" of the private sector's involvement in the second aid package, which Germany hopes will eventually total about €30 billion.
Greece said it expected a final decision on a second bailout programme by mid-September to keep the country financed.
"Eurogroup decided through a teleconference today to work out a new programme on time, before mid-September," Greek finance minister Evangelos Venizelos said shortly after the disbursement was approved. "What is crucial now is to implement parliament's decisions on time and effectively," he said.
The €12 billion payment will help Athens cover a €5.9 billion bond redemption in August, but the government still has a monumental hill to climb if it is to return to debt sustainability, with its debt-to-GDP ratio above 150 per cent.
Athens has repeatedly failed to meet budget targets laid down in the first bailout programme, raising the risk that the crisis will spread across the euro zone if unresolved.
Greece's second financing programme is to run from 2011 to 2014 and will come on top of the existing assistance package. As part of the package, Greece is expected to raise €30 billion from privatisation, while the EU and IMF will provide a further €50 billion between them.
"The precise modalities and scale of private sector involvement and additional funding from official sources will be determined in the coming weeks so as to ensure that ... required programme funding is in place," a statement from the Eurogroup read, indicating a delay in the second programme as they had been expected to finalise its details at a meeting on July 11th.
"Ministers agreed that the main parameters of a multi-year adjustment programme for Greece will revolve around a continued strong commitment to implementing fiscal consolidation measures... and concrete structural reform and privatisation."
EU leaders made a commitment to the second programme at their last summit in June, which should satisfy the IMF's condition that the euro zone must promise to finance Greece 12 months ahead for the IMF to contribute.
Despite the release of the next tranche payment, which will provide breathing space for Athens, there is growing concern among EU officials that the strictures being imposed on Greece, including €28 billion of austerity measures between now and 2015, are too harsh and could cause longer-term damage.
Reuters
