EU leaders put pressure on Greeks over austerity plans
Taoiseach Enda Kenny admitted that he was unlikely to get a deal on cutting Ireland’s bailout interest rate but said that next Tuesday’s vote by the Greek parliament was “absolutely crucial to the future of Europe”.
European Central Bank chief Jean-Claude Trichet warned the risks from the Greek crisis may be “approaching colour code red”. He said problems with Greek finances could overflow and result in major losses among banks that hold Greek debt.
His warnings combined with fears about Greece and concerns about slowing growth in Europe and the US caused the value of the euro to drop.
Antonis Samaras, leader of New Democracy, the main Greek opposition party, came under pressure from the 17 leaders, including Mr Kenny, who belong to the European People’s Party when they met before the summit.
He told them his party would vote against the package needed to access a second bailout, saying the cuts had taken too much out of the economy, that the deficit had increased and measures were needed to help a recovery.
Greek Prime Minister George Papandreou said his country was committed to an austerity programme with its insistence on the sale of state assets. “This is a fight for Greece ... But it’s also a fight for a common European currency and a common Europe.”
However, having barely survived a confidence motion in Parliament on Tuesday, he was reported as telling fellow Socialist politicians that he was not overly optimistic about winning the vote for the packages in the deeply divided Greek parliament on Tuesday.
Greece won the consent of international lenders yesterday for a five-year austerity plan. After a day of wrangling in Athens, Finance Minister Evangelos Venizelos clinched a deal with EU and IMF inspectors on extra tax rises and spending cuts to plug a €3.8 billion funding gap due to a revenue shortfall.
Meanwhile, a meeting of German Chancellor Angela Merkel, French President Nicolas Sarkozy, European Commission president Jose Manuel Barroso, European Council president Herman Van Rompuy, ECB president Mr Trichet and the Greek prime minister took place before the summit.
The emphasis was on agreeing a unified plan that would satisfy the IMF, which had threatened to withhold the fifth tranche of Greece’s loan due next month unless the EU could guarantee funding for at least a year and prevent Greece going bust.
Mr Barroso explained a plan to put money into the real economy centres around helping Greece to claim and spend €15bn of EU funds it is entitled to. It has claimed only €5bn over the past five years from the €20bn it is entitled to over a seven-year period.
“It is partly a result of the crisis and partly because they do not have the administrative capacity to draw down the funds,” an official said.
France, Germany and the Netherlands have begun talks with banks on getting private investors to take part in the Greek rescue. For this, lenders may agree to re-lend their money when it is paid back, rather than taking it. But it must be seen as voluntary so as not to trigger a default.
The Institute of International Finance, representing the world’s biggest banks, met the Greek prime minister in Athens to discuss how they would be involved. The details need to be completed by July 3 when finance ministers will meet again.
The leaders had hoped to sign off on a package of laws that gives the EU major oversight of member states’ budgets and how they spend their money.
But the European Parliament wants provisions that will make it difficult for the leaders to let one another off the hook. They also want to keep tabs on countries — like Germany — that have strong exports but weak domestic markets, creating an imbalance.
Both sides will try to reach agreement over the next few weeks as both are aware that they need to show they can take decisions about preventing future crisis.
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