EU finance ministers’ meeting cancelled

Hopes of a quick fix for Greece were dashed last night as a eurogroup finance ministers’ meeting due to be held today was cancelled.

The announcement by the president of the eurogroup, Luxembourg prime minister Jean- Claude Juncker came just hours after Economics Commissioner Olli Rehn said it was essential the meeting was held to finalise the bailout package.

Mr Juncker’s finance minister, Luc Frieden, became the second finance minister in two days to talk about Greece leaving the euro. Germany’s Wolfgang Schäuble said if all failed, they were better prepared for a country exiting the eurozone than two years ago.

Two of the three demands made by the eurogroup last week on Greece have not been fulfilled, Mr Juncker said when calling off today’s meeting and replacing it with a conference call.

The demands were that the leaders of the three Greek coalition parties sign up to the new austerity programme in exchange for the €130bn bailout, and that on top of the €3.2bn of savings to be made this year, an additional €325m would be found.

A government official in Athens said there was a specific proposal approved by the cabinet to raise the €325m which would be submitted to the eurogroup, according to Reuters.

Further work between Greece and the troika in a number of areas was required, including on the debt sustainability analysis.

The analysis is essential and will include the effect of the private sector involvement, with an as yet unknown number of investors agreeing to swap their bonds to reduce the debt by 50%.

A decision on whether and to what extent the ECB will reduce their expected take from Greek bonds they hold will also depend on the analysis.

The final decision on the second Greek bailout is expected to be taken on Monday night at the eurogroup’s regular monthly meeting. They are quickly running out of time as several weeks are needed to finalise the PSI arrangements and for the rescue fund, the EFSF, to raise money on the markets.

Any deal will also have to be approved by the IMF governing board, which could prove problematic if the analysis shows Greek debt will not drop from 160% to 120% of GDP by 2020.

Greece needs at least part of the money by Mar 20 to avoid defaulting on €14.5bn of debt. Mr Rehn said he expected to be able to launch the offer on private sector involvement soon to reduce the debt burden on Greece.

Asked about the ongoing protests by the public over the austerity measures including reducing the minimum wage by 22% to around €500 a month, Mr Rehn said tax evasion was a cause of social injustice that he hoped to change.

The general election in April, added to the public protests, are making it increasingly difficult for the politicians to support additional austerity. Antonis Samaras, leader of the centre-right New Democracy party and tipped as the next prime minister, expelled a quarter of his deputies on Sunday after they refused to vote for the measures at the weekend.

The leader and three ministers from the small coalition party, LAOS, resigned from the government last week. This is heightening fears among the eurogroup that the Greek politicians have the will to see through the agreed measures and reforms.

Greece is being subjected to an “overdose of austerity” with the result that “we will likely see more many more tense moments in Greece, with a very serious risk that Greece will eventually have to leave the euro”, Holger Schmieding and Christian Schulz of Berenberg Bank said in a note, Bloomberg reported.

German and other policymakers have made clear that “support for Greece could be cut off at any time if the country fails to implement the harsh programme”, the economists said.