Greece and its international lenders will renegotiate the programme on which its second financial bailout is based because circumstances have changed, a senior euro zone official said today.
Greece secured a second, €130 billion bailout package in February from Europe and the International Monetary Fund, but an inconclusive general election in May and a return to the ballot box last Sunday delayed the implementation of the conditions attached to the bailout.
Greek parties are currently in talks to create a coalition government with a mandate to renegotiate the terms of the bailout, which has staved off national bankruptcy, but at the cost of deeply unpopular austerity measures.
The United States, the largest IMF member, said it supported discussions to review the Greek bailout programme, but German chancellor Angela Merkel has said that loosening Greece's reform promises would be unacceptable.
Dr Merkel, speaking to reporters today in Los Cabos, Mexico, said that it is necessary to wait for the next report of the so- called troika of creditors. Greece must stick to the rules, she said.
However, the euro zone official disputed Dr Merkel?s stance.
"Anybody who would say that we need not, and cannot renegotiate the MoU (memo of understanding) is delusional, because he, or she, would be under the understanding that the whole programme, the whole process, has remained completely on track ever since the weeks before the Greek first election," the official said.
"Because the economic situation has changed, the situation of tax receipts has changed, the rhythm of implementation of the milestones has changed, the rhythm of privatisation has changed, if we were not to change the MoU, it does not work," he said. "We would be signing off on an illusion.?
The official said representatives of the troika will come to Greece as soon as there is a new government to review the implementation of the programme so far and prepare for negotiations.
In Greece, New Democracy leader Antonis Samaras is continuing talks today on the formation of a coalition government.
Mr Samaras, the leader of the largest party to emerge from Sunday?s election, failed to reach agreement with potential partners last night. He said more time was needed after the talks with four party leaders, two of whom ruled out any involvement in a coalition willing to administer the bailout memorandum agreement
The leader of Greece's Pasok socialists, who are expected to form a government with the conservative New Democracy, said this morning the country would have a government as soon as possible but there was no immediate agreement with the small Democratic Left on a new pro-bailout coalition.
"Greece must and will have a government as soon as possible," Evangelos Venizelos told reporters after meeting Democratic Left leader Fotis Kouvelis, adding that he was "optimistic".
However, hopes that the government may be in place by the end of the day appeared to fade after Mr Kouvelis, whose party opposed the bailout deal in the election campaign, said several points still needed to be negotiated and agreement might take longer. "There will be a government, but I don't know if it will be formed by tonight. I believe we will have reached an agreement by the end of the week," he told reporters.
The announcement yesterday that leftist Syriza, which came second in the re-run election, and the nationalist Independent Greeks would not join the government came as no surprise. Both parties reject the terms attached to the bailout deal.
Mr Samaras?s meetings with leaders began after he received a government-forming mandate from president Karolos Papoulias. The authority is valid for three days, after which it passes to the leader of the second-placed party if no government has been formed.
Mr Samaras told the president that he would try to form a government with ?pro-European parties?, but stressed that a new administration would have to apply the memorandum in a socially just way. ?We have to make the necessary amendments to the [bailout] programme . . . The new government has to be decisive on the issue of social cohesion. National understanding is imperative,? said the New Democracy leader.
Mr Venizelos yesterday reiterated his call for a broad government of ?shared responsibility? with New Democracy that should also include Syriza and Democratic Left.
Even though the new parliamentary arithmetic gives the conservatives and their erstwhile archrivals, Pasok, an 11-seat majority in the 300-MP parliament, Mr Venizelos is concerned by the long-term viability of any administration with Syriza as its main opposition.