Monday, June 20, 2011

Europe ties Greece loans to austerity

Sidney Morning Herald
Rodney Thompson

Europe has promised to unblock existing bailout loans for Greece and draw up a second financial rescue as long as its parliament approves fierce new budget cuts and a raft of asset sales.

After seven hours of crunch talks aimed at averting Greek default and fears of a domino effect across their shared currency area, eurozone finance ministers said they and the IMF would release 12 billion euros ($A16.25 billion) of loans in "mid-July" once Greece's parliament passed the austerity measures.
They also agreed on a roadmap for a second, 100 billion euro ($A135.45 billion) bailout, which would involve taxpayers' money but also a "substantial" contribution via the "informal and voluntary rollovers of existing Greek debt at maturity" by private banks, pension funds and insurers.
Greece needs funds to avoid a repayments bottleneck next month, but ahead of a parliamentary confidence vote in Prime Minister George Papandreou's reshuffled government set for Tuesday, Luxembourg prime minister Jean-Claude Juncker said it was "obvious" that commitments to hand over more money could not be given prior to parliamentary backing for conditional austerity.

"We stressed forcefully that the Greek government, by the end of this month, must act so as to convince us that all the commitments entered into by the Greek authorities are met," Juncker said, referring to negotiations with the European Union and International Monetary Fund.

A controversial budget plan, including 28.4 billion euros ($A38.47 billion) of fiscal belt-tightening, along with a vow to make 50 billion euros ($A67.72 billion) from privatisations by 2015, has triggered civil unrest.
Juncker, who heads the group of eurozone finance ministers, said while the political situation had evolved, "we have to wait for the final vote on the program".

"We still sense the need for a deal between the main Greek parties," he warned, despite new Greek finance minister Evangelos Venizelos vowing "we can achieve our targets".
Only once Greek MPs bite the bullet will that "pave the way for the next disbursement by mid-July," the Eurogroup said - releasing 8.7 billion euros from eurozone governments and 3.3 billion from the IMF.

Showing the extent of international fears over renewed financial contagion, G7 finance ministers from Britain, Canada, France, Germany, Italy, Japan and the United States held a late-night telephone conference to discuss the Greek debt crisis.

Wrapping up moments before the opening of Asian markets, ministers said banks, pension funds and insurers will be invited to agree to "informal and voluntary rollovers" of existing debts years after their original redemption dates.

The litmus test, they said, was that the private sector contribution would be one "avoiding a selective default," meaning different ranking for different creditors, public and private.
"On these conditions, ministers decided to define by early July the main parameters of a clear new financing strategy."

However the initial verdict from Asia was less than encouraging, with the euro falling against the dollar in a trend that dealers said reflected the continuing uncertainty surrounding the bailout.
The euro fell to $US1.4235 in Tokyo afternoon trading from $US1.4301 in New York late Friday.
The European single currency also sagged to 114.11 yen from 114.46 yen.

Meanwhile, the main Milan stock exchange index fell by more than two per cent at the start of trading on Monday after Moody's warned it may cut Italy's credit rating in view of strains in the economy.
Banking stocks were among the worst affected, with shares in Intesa San Paolo dropping 2.42 per cent to 1.775 euros and UniCredit plunging 2.36 per cent to 1.487 euros following Moody's announcement on Friday.

Juncker warned on Saturday that the euro crisis hitting Greece could affect Italy and Belgium, saying in an interview with a German daily: "We are playing with fire."
Juncker told Suddeutsche Zeitung that the crisis could also hit, "due to their high levels of debt, Belgium and Italy, even before Spain".

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