EURO ZONE FINANCE ministers early this morning withheld the release of a €12 billion loan to Greece, saying they could not authorise the release of the money until the Greek parliament backed a swingeing new austerity plan.
As a seven-hour emergency meeting broke up shortly before 2am in Luxembourg, the ministers failed to agree to deliver the funding due to the ongoing political turmoil in Greece. The development upped the
stakes in their talks with the authorities in Athens.
Despite the collapse of talks last week on the formation of a national unity government, the ministers
called on “all political parties” in Greece to back the main objectives of the recovery programme agreed with
the EU-IMF troika.
However the ministers have backed the development of a second international bailout for the country. In a statement, they said they “welcome the pursuit of voluntary private sector involvement in the form of informal and voluntary roll-overs of existing Greek debt at maturity for a substantial reduction of the required year-by-year funding within the programme, while avoiding a selective default for Greece.”
Belgian finance minister Didier Reynders said, as he left the meeting, that it was “impossible to decide
today” to release the €12 billion loan “because we need to have a clear decision of the Greek parliament” on the recovery plan.
If Greek parliamentary approval is granted, Mr Reynders said the ministers would agree in early July to provide the loan and release the money to Greece in the middle of the month. The ministers’ refusal to release the loan reflects increasing concern that Greek MPs might scupper the new austerity plan.
Concerned about mounting opposition to the plan in the Greek parliament, the ministers’ last-minute
brinkmanship with Athens comes as MPs debate a confidence motion in prime minister George Papandreou ahead of a vote tomorrow night.
Addressing MPs in Athens yesterday, Mr Papandreou said his country’s cash reserves would soon be exhausted without this money. He has been under intensive pressure within his own Socialist PASOK
party for weeks as ministers and MPs waver over the delivery of the new austerity programme.
“The consequences of a violent bankruptcy or exit from the euro would be immediately catastrophic for households, the banks and the country’s credibility,” he said in parliament. Tomorrow’s confidence vote, a
defining test of Mr Papandeou’s authority over his divided government, is crucial to the delivery of fiscal reforms sought by Europe and the IMF in return for rescue aid.
The ministers’ emergency meeting, their second in less than a week, comes as the turmoil in Greece stokes anxiety in Dublin that it could derail the Government’s effort to regain entry to private debt markets next year.
As he arrived for the talks, Minister for Finance Michael Noonan said he wanted to ensure any deal to settle the Greek debacle carries no risk of a “contagion effect” for Ireland”.
“The primary Irish interest here is to ensure that whatever solution is put in place doesn’t contain elements
which would affect us adversely,” he said. This was a reference to his established support for the European Central Bank’s policy that any move to recruit private creditors to back a second Greek bailout should be purely voluntary.
This remains the most technically challenging element of the negotiation and it is contentious politically. However, German chancellor Angela Merkel has retreated from her demand for compulsory bondholder participation.
The ministers have been trying to damp down a renewed surge of market tension which has sent notional borrowing costs for Greece and Ireland to new records and put Spain under pressure again.
