Athens contorts for €130 billion carrot

Greece faces further hurdles and delays before it can receive a second €130 billion bailout, in spite of its politicians voting through more austerity measures in the face of violent protests.

The EU’s Economic Affairs Commissioner Olli Rehn yesterday called the Greek parliament’s approval of a further round of budget cuts a “crucial step forward”, but Germany insisted it would still take some time before the second bailout is delivered.

Germany, which as Europe’s biggest economy pays the largest part in bailout deals, said it would not give its final approval for the new aid payments until early March — after it becomes clear how many banks and investment funds are willing to take losses on their Greek bonds and the parliament in Berlin votes on the new measures.

Pushing the new bailout back for weeks underlines the amount of distrust that has built up against Greece in the past two years, when many promised cuts and reforms were passed in parliament but never actually implemented.

But it also means that Greece, its citizens, and the rest of the world economy will not know for weeks whether the country can avoid a potentially disastrous default. A bankruptcy could force Greece out of the eurozone, drag down other troubled eurozone countries and further disrupt global markets.

“Germany is trying to get the best deal it can by putting pressure on Greece now,” said Ben May, European economist at Capital Economics in London.

The idea is to “give Greece a bit more of an incentive over the next few weeks to speed things up and get things moving”.

But delaying the final approval of the bailout is not without risk. Uncertainty over the new rescue money could dissuade some of Greece’s private investors from participating in a separate bond swap deal, May warned. A hitch in getting the bailout package through national parliaments in the eurozone could also push Greece perilously close to missing a €14.5bn bond redemption on March 20, he added.

Greece’s political leaders scrambled over the weekend to get new, far-reaching austerity measures through parliament ahead of a meeting of the finance ministers from the 17 eurozone countries tomorrow. The drastic cuts debated on Sunday included axing one in five civil service jobs over the next three years, and slashing the minimum wage by more than a fifth.

As Greek politicians voted on the cuts, the streets of Athens and other cities were rocked by violent protests. In Athens, at least 45 buildings were burned, while dozens of stores and cafes were smashed and looted.

Police arrested 74 people and detained a further 92, while in several cases they had to escort fire crews to burning buildings after protesters prevented access.