Europe promised yesterday to unblock existing bailout loans for Greece and draw up a second financial rescue as long as its Parliament approves fierce new budget cuts and a raft of asset sales.
After seven hours of crunch talks aimed at averting Greek default and fears of a domino effect across their shared currency area, eurozone finance ministers dangled both carrot and stick at Greece saying they and the IMF would release €12 billion of loans in “mid-July” once lawmakers did their bit.
They also agreed on a roadmap for a second €100 billion bailout, which would involve taxpayers’ money but also a “substantial” contribution via the “informal and voluntary rollovers of existing Greek debt at maturity” by private banks, pension funds and insurers.
Greece needs funds to avoid a repayments bottleneck next month, but ahead of a parliamentary confidence vote in Prime Minister George Papandreou’s reshuffled government set for today, eurogroup chair Jean-Claude Juncker said it was “obvious” that commitments to hand over more money could not be given prior to parliamentary backing for conditional austerity.
“We stressed forcefully that the Greek government, by the end of this month, must act so as to convince us that all the commitments entered into by the Greek authorities are met,” Mr Juncker said, referring to negotiations with the European Union and International Monetary Fund.
A controversial budget plan, including €28.4 billion of fiscal belt-tightening, along with a vow to make €50 billion from privatisations by 2015, has triggered civil unrest. While “the political situation has evolved,” Mr Juncker said, “we have to wait for the final vote on the programme.
“We still sense the need for a deal between the main Greek parties,” he warned, despite new Greek Finance Minister Evangelos Venizelos vowing “we can achieve our targets.”
Only once lawmakers bite the bullet will that “pave the way for the next disbursement by mid-July,” the Eurogroup said – releasing €8.7 billion from eurozone governments and €3.3 billion from the IMF.
Ministers, though, stressed the need thereafter for “rigorous and expeditious implementation” of Greek promises.
“Given the length, magnitude and nature of required reforms in Greece, national unity is a prerequisite for success,” they added in a statement.
Showing the extent of international fears over renewed financial contagion, G7 finance ministers from Britain, Canada, France, Germany, Italy, Japan and the United States held a late-night telephone conference to discuss the Greek debt crisis.
Wrapping up moments before the opening of Asian markets, ministers said banks, pension funds and insurers will be invited to agree to “informal and voluntary rollovers” of existing debts years after their original redemption dates.
The litmus test, they said, was that the private sector contribution would be one “avoiding a selective default,” meaning different ranking for different creditors, public and private.
“On these conditions, ministers decided to define by early July the main parameters of a clear new financing strategy.”