Suddenly help for Greece is getting tougher, despite the widespread expectation that the 12 billion euros of loans from the IMF and EU would be paid so as to avert a financial crunch.
After talks which dragged on for seven hours into early Monday, European time, the meeting of eurozone finance ministers put the next tranche of loans for Greece on hold after asking the Greek government and Parliament to approve new austerity measures first.
The ministers of the 17 eurozone area countries said in a post meeting statement yesterday that the disbursement of the next tranche of loans would depend on the outcome of the ongoing negotiations between the Greek government and the EU, in liaison with the International Monetary Fund (IMF), and it would also hinge on the adoption of highly controversial new austerity measures by the Greek Parliament.
The Financial Times said it had been told the IMF was behind the tougher line and insisted Greece had to give firmer assurances that the austerity package would be implemented, than it had so far given.
In other words, the vote of confidence tonight has to go the Greek government’s way, and a further vote by the Parliament on June 28 has to be in favour of the cuts.
The stance means the euro crisis won’t go away quickly.
The Financial Times reported that finance ministers from the Group of Seven had a discussion on Sunday night, European Time on the issue, with another scheduled for this morning, Sydney time.
"This, together with the passing of key laws on the fiscal strategy and privatization by the Greek parliament, will pave the way for the next disbursement by mid-July," the eurozone finance ministers said in the statement issued after seven hours of talks on Sunday and Monday.
The Mid-July date was unofficially set late last week in a flurry of negotiations after Germany and France ended their differences over the structure of the second bailout.
That will have to be negotiated and is said to be more than the 110 billion euro first bailout from last year. But some of that will carry over into the new fund that could total 150 billion.
The finance ministers backed up again for a second day overnight when they were joined by the finance ministers of other non-euro countries, such as Britain.
The fifth tranche of loans, which amount to 12 billion euros was originally planned to be handed to Greece this month so that Athens could pay back debts that mature in mid-July (July 15).
It is part of the 110-billion-euro ($US157-billion) bailout program supplied by the EU and the IMF to keep Greece afloat in May last year.
In exchange for the financial support, Athens has to implement 28 billion of austerity measures and sell billions of assets, amid further economic reforms to bring down its deficits.
But that hasn’t happened and the government went into crisis late last week, forcing a reshuffle of cabinet amid a rising tide of protest from ordinary Greeks.
If Greece doesn’t get the 12 billion euros in time, it would be unable to pay its the debt maturing in July and face the imminent risk of default. Of course creditors could allow the country more time to repay rather than face imminent losses on their loans (and triggering a widespread crisis).
Greek Prime Minister George Papandreou reshuffled his cabinet on Friday in a bid to drum up support for the new austerity package he introduced early this month to convince the EU and the IMF to release the next tranche of loans.
The new belt-tightening measures have led to violent protests and waves of strikes in the past week, casting doubt on whether the Greek Parliament could give its urgently-needed approval to win new loans from the EU and the IMF.
According to a report on Reuters "the Belgian finance minister Didier Reynders said a final decision on the €12bn that Greece urgently needs would be made in early July, and depend on the prime minister, George Papandreou, surviving a vote of confidence."
"To move to the payment of the next tranche, we need to be sure that the Greek parliament will approve the confidence vote and support the programme," he said. "So the decision will be taken at the start of the month of July regarding the complete financing strategy and the next tranche and the definitive programme.
"Jean-Claude Juncker, the Luxembourg prime minister who heads the EU, said: "We have agreed today that the contribution [of the private sector] must be voluntary, but … Greece also has to deliver. If you aim for a voluntary private contribution you can’t fix what size it must be beforehand. That also has to be discussed with private creditors.
"We very much depend on Greece’s parliament passing all bills and we will discuss more about the role of private creditors at the beginning of July, but the role will be voluntary and we will have to check whether Greece will by then have fulfilled its obligations."
Greece’s debt, which stood at 340 billion euros last December, is now estimated to exceed 355 billion, or 150% of GDP. The government has revenues of around 40 billion, but that is under pressure because of the recession and the impact of the austerity measures.
This looks like another road to nowhere, until something again forced the crisis to be addressed.
Greece cannot repay these loans.
