Greece can and will reconstruct country, says finance minister

Greece can and will carry out austerity measures and “reconstruct the country”, finance minister Evangelos Venizelos said today.

He was arriving in Brussels for talks with fellow eurozone finance ministers as Athens awaited news of a new prime minister in a national unity government expected to nod through the latest EU bailout package and fend off bankruptcy for at least a few more months.

“After a difficult week, we now have a new political situation, a new political frame, in Greece,” declared Mr Venizelos, who only days ago was being tipped as the likely successor to prime minister George Papandreou.

“We have a new government of national unity and national responsibility. This is the proof of our commitment and our national capacity to implement the programme and reconstruct the country.”

The words were unlikely to buck up financial markets, however, as the receding political storm in Athens was being replaced by a much bigger crisis in Rome.

As the eurozone ministers met, Italian prime minister Silvio Berlusconi was clinging onto power in the face of mounting pressure to quit over the state of his economy.

With their attention drawn to both Athens and Rome, the eurozone ministers in Brussels were trying to flesh out the terms of the latest EU summit deal, in particular a massive increase of an existing EU bailout fund from €440bn to about one trillion euros.

But no new money is in the kitty and the problem now is agreeing how to “leverage” the existing fund to generate the extra potential revenue for future bailouts.

One EU official said: “There will be no agreement tonight or tomorrow on how to leverage the European Financial Stability Facility, and we’ve already fixed another eurozone meeting for November 17.”

Officials now acknowledge privately that, even if a mechanism could be agreed between capitals, the sum of one trillion euros is not enough of a contingency fund to deal with other, larger euro economies if they need bailing out.

“Greece, which represents just a tiny fraction of eurozone GDP, can be financed relatively easily,” explained one EU diplomat. But if Italy goes down the same route, the required bail-out could be virtually unfundable.

“The fact is that Italy’s economy is so large that we like to think of it as too big to fail – but it might,” the diplomat added.

The 17 eurozone ministers gathering tonight will be joined tomorrow by the rest of the EU finance ministers, including Chancellor George Osborne. He arrived in Brussels this afternoon for talks with Conservative Euro-MPs and later with other non-eurozone finance ministers, including his Czech counterpart.

But the terms of completing the eurozone bail-out deal are a matter for the 17 eurozone ministers alone, officials insisted.

Greece is still far from secure economically, Italy is now a potential candidate for a rescue deal beyond the means of Europe, and there is no detailed accord on how to fund the bailout promises made last month:

“So much remains so uncertain, we are taking this one day at a time. The problem is that the clunky rigidity of the EU’s decision-making processes cannot adjust quickly enough to fast-changing circumstances,” admitted the official.