Europe clears urgent aid to save Greece from default
Eurozone finance ministers cleared the way for Greece to receive urgent funds to avoid imminent bankruptcy, but warned it would take weeks to conclude a new bailout for the debt-hit nation.
Greece is expected to receive 12 billion euros from the eurozone and IMF by July 15 after the ministers approved the fifth tranche of aid from last year’s 110-billion-euro ($160 billion) financial rescue package.
The IMF is due to clear its slice of the next installment, 3.3 billion euros, next week. The eurozone’s share amounts to 8.7 billion euros.
Following a more than two-hour conference call, the ministers said in a statement they would also determine the details of a second bailout for Greece, including the scale of private sector participation, in the “coming weeks.”
German Finance Minister Wolfgang Schaeuble indicated that Greece may have to wait until autumn for a new rescue package as Berlin wants Athens to follow through with its commitments, including privatisations “that should begin immediately.”
The IMF welcomed Europe’s move Saturday.
“We welcome the eurogroup’s commitment to a financing strategy that ensures the Greek economic program is fully covered,” chief International Monetary Fund spokeswoman Caroline Atkinson said in a statement.
“This commitment — together with the recent parliamentary passage of the necessary fiscal measures in Greece — will enable the IMF’s executive board to consider the completion of the fourth review and the release of the next tranche under the current stand-by arrangement with Greece.”
The Greek parliament responded to EU and IMF demands this week by passing 28.4 billion euros in budget cuts and tax hikes, and a 50-billion-euro privatisation programme, despite rioting in the streets of Athens.
Greek Finance Minister Evangelos Venizelos pledged that Athens would fulfill its end of the bargain as he welcomed the release of the next tranche, saying it “strengthened the country’s international credibility.”
“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 added.
European diplomats said the eurozone finance chiefs would discuss the second bailout again on July 11 in Brussels but that a decision will likely have to wait until September.
Talks on a new bailout — expected to be similar in size to the first one — are tricky because some governments, especially Germany, want private investors to share the pain by agreeing to a voluntary rollover of Greek debt.
Under the scheme banks, insurers and pension funds would buy new bonds to replace those maturing soon.
The eurozone statement said talks with Greece’s creditors are underway to define the modalities for a voluntary private sector participation, “with a view to achieving a substantial reduction in Greece’s year-by-year financing needs, while avoiding selective default.”
The new rescue package would revolve around “a continued strong commitment” from Athens to implement austerity measures as well as “ambitious and concrete structural reform and privatisation plans,” the ministers said.
Their plan won the backing 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 financial house in order.
German banks made a gesture Thursday by agreeing to extend the maturities of around 3.2 billion euros ($4.6 billion) in Greek bonds due to expire between now and 2014.
Since the eurozone wants to avoid any scheme that would be interpreted as a default, governments are holding talks with the world’s powerful credit ratings agencies to determine how they would view the deal, a European diplomat said.
Analysts warn that any Greek default could spill over to other eurozone nations such as Ireland and Portugal, and even Spain and Italy.
“We can’t afford to relax and we need to move forward as fast as possible, both on the eurozone and IMF side,” Polish Finance Minister Jacek Rostowski, whose country took over the rotating EU presidency, said earlier Saturday.
On Saturday, the United States reiterated calls to Europe to find a lasting solution to the debt crisis.
“It is our hope that European leaders continue to make sure that Europe’s response to the crisis is strong, flexible and effective,” US Secretary of State Hillary Clinton said during a visit to Madrid.