Greece avoids bankruptcy as EU clears way for bailout
Greece will be able to pay its bills this month after eurozone finance ministers cleared the way late on Saturday for the next €12 billion tranche of a €110bn bailout granted last year by the EU and IMF.
But the ministers still need to work on a second rescue package potentially of similar size to ensure Athens can stay afloat until at least 2014, warding off a devastating default that would reverberate across Europe.
“We can’t afford to relax and we need to move forward as fast as possible, both on the eurozone and IMF side,” said Polish finance minister Jacek Rostowski, whose country chairs the rotating EU presidency but is not part of the 17-nation eurozone.
European diplomats warn that eurozone finance chiefs are unlikely to finalise a second bailout at their next meeting on July 11 and Greece may have to wait until September.
Negotiations for a new rescue are more complex because some governments, especially Germany, want private investors to share the burden by agreeing to voluntarily “roll over” their Greek debt.
The hope is that banks, insurers and pension funds will buy new Greek bonds to replace those maturing soon, but in a way that will not be interpreted as a default by credit rating agencies.
Their plan won the backing on Friday of a key global finance group, the Institute of International Finance (IIF), which represents banks, insurers and investment funds.
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 house in order.
Greece is also under pressure to swiftly implement €28.4bn in budget cuts and tax hikes, and a €50bn privatisation programme, that the parliament approved last week despite riots in the streets of Athens.
“The measures decided by Athens must quickly be implemented. The privatisations must for example begin immediately,” said German finance minister Wolfgang Schaeuble, indicating that a second bailout may have to wait until late 2011.
Greek finance minister Evangelos Venizelos pledged that Athens would fulfil its end of the bargain.
“What is crucial now is the timely and effective implementation of the decisions taken in parliament, so we can gradually emerge from the crisis in the interest of national economy and the Greek citizens,” he said.
The crisis has already spread to Ireland and Portugal, which have received their own bailouts, and other eurozone nations such as Spain and Italy are currently slashing budgets to avoid becoming the next victims.
“European policymakers’ inability to deal with the crisis quickly and decisively is hitting the rest of the periphery,” said research group Capital Economics.
