GREEK LEADERS were told to swiftly fulfil the remaining conditions for a second bailout after MPs voted to back the austerity drive set out in the new EU-International Monetary Fund plan for the country.
Although parliament’s support for the initiative is seen as a sign of progress, a senior euro zone official said the debate over Greece remains “tense” as the authorities work to pin down the remaining elements of the plan.
For the European powers, the official said, the question now posed by the crisis in Greece was whether its leaders were willing to do what was required to keep the country in the single currency.
To trigger the new bailout, Greece must find an additional €325 million in cuts and tax measures by mid-week and its leaders must pledge to continue executing the rescue plan after an election in April. Their failure to keep promises made under the first bailout has already led euro zone finance ministers to declare that aid will not be released if there is no implementation of the plan.
Although EU economics commissioner Olli Rehn warned that disorderly default would devastate Greece, he also said such a move would have very negative ramifications for the entire European economy through “chain reactions” and market contagion.
“Yesterday’s vote in the Greek parliament is a crucial step towards the adoption of the second programme,” Mr Rehn told reporters in Brussels. “I am quite confident that the other conditions, including the identification of concrete measures of €325 million, will be completed by the next meeting of the euro group, which would then decide on the adoption of the programme.”
Although the ministers are due in Brussels tomorrow evening for their second special meeting on Greece in under a week, many key aspects are still unsettled.
In spite of what Mr Rehn said yesterday, this has led some officials to speculate that the final political approval might not come tomorrow after all. Greece stands to receive €130 billion in loans under the second rescue as well as a €100 billion debt reduction.
Even after these measures, the country faces a “funding gap” of up to €15 billion to ensure debt targets set by the IMF are met. This remains the biggest single open issue, with contributions from the European Central Bank and national central banks in play.
Alternative options to make up the shortfall include additional aid from euro zone governments, something Germany has resisted, and a further interest rate cut on Greece’s rescue loans. The resolution of this question is crucial for Greece’s private creditors, who are close to an agreement with Athens on a voluntary debt restructuring process. In addition, the ministers must decide whether to accept a Franco-German plan to have bailout loans delivered to Greece via an escrow account.
Such a measure would enable Europe to earmark rescue aid for debt reduction and, if the Greek government breaks its promises, withhold aid for general expenditure. Also in question is the procedure used to transfer funds committed but not disbursed under the first, unsuccessful EU-IMF bailout plan into the second rescue initiative. The authorities must also decide when the first release of money from the new bailout will be made. They must also agree a timetable for the German, Dutch and Finnish parliaments to ratify the deployment of the European Financial Stability Facility bailout fund to help Greece.