Eurozone finance ministers began talks yesterday to clear urgent aid to save Greece from imminent bankruptcy amid tough behind-the-scenes wrangling on a second bailout for the debt-hit country.
The ministers started a conference call to release €12 billion for Greece, the fifth tranche of aid from a €110 billion bailout granted by the EU and IMF last year.
Eurozone governments reached an agreement in principle on the pay-out last Friday after the Greek parliament met EU and IMF demands to pass tough austerity measures despite rioting in the streets of Athens.
The ministers decided to cancel a meeting in Brussels today and speak by phone instead because nothing is holding up the next tranche, diplomats said. But they need more time to negotiate a second bailout for Greece.
“Since things are moving forward on the fifth tranche, which is good news and a breath of fresh air, and that work on (the new bailout) is not ready for Sunday (today), we preferred to have a conference call,” a European diplomat said.
Greece desperately needs the €12 billion this month to avoid an immediate default on its debt.
Analysts warn that such a default could spill over to other eurozone nations such as Ireland and Portugal, and even Spain and Italy.
But Athens has requested a new rescue package that Prime Minister George Papandreou says could be as big as the first one.
“We can’t afford to relax and we need to move forward as fast as possible, both on the eurozone and IMF side,” Polish Finance Minister Jacek Rostowski, whose country took over the rotating EU presidency, said yesterday.
Amid fears a Greek default could ripple across the financial world, the US has pressed Europe to find a lasting solution to the debt crisis.
“It is our hope that European leaders continue to make sure that Europe’s response to the crisis is strong, flexible and effective,” US Secretary of State Hillary Clinton said during a visit to Madrid yesterday.
Talks on a second bailout are tricky because some governments, especially Germany, want private investors to share the pain by agreeing to a voluntary rollover of Greek debt. Under the scheme they would buy new bonds to replace those maturing soon.
Their plan won the backing last Friday of a key global finance group, the Institute of International Finance (IIF), which represents banks, insurers and investment funds.
“The private financial community is ready to engage in a voluntary, cooperative, transparent and broad-based effort to support Greece given its unique and exceptional circumstances,” the Washington-based IIF said.
Diplomats said a decision on the size of the new bailout, and the participation of private investors, could come at another meeting in Brussels on July 11, or up to two months later.
“The programme must be sealed as soon as possible, but we can’t rule out that its conclusion be put off to September,” a diplomat said.
Since the eurozone wants to avoid any scheme that would be interpreted as a default, governments are holding talks with the world’s powerful credit ratings agencies to determine how they would view the deal, the diplomat said.
France, whose banks hold a sizeable proportion of Greek debt, has proposed, among other measures, that lenders roll over their loans into new 30-year bonds, giving Greece more time to put its financial house in order.
German banks made a gesture last Thursday by agreeing to extend the maturities of around €3.2 billion in Greek bonds due to expire between now and 2014.