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Strings attached

June 20, 2011

Eurozone finance ministers said Greece must strengthen austerity measures before it can receive more loans to keep its indebted economy afloat. Greek PM George Papandreou has called for national unity amid the crisis.

Greek Prime Minister George Papandreou
Papandreou's Greece is headed for economic ruinImage: dapd

Eurozone finance ministers have decided that Greece must accelerate austerity measures before it can receive an additional 12 billion euros ($17 billion) in emergency loans to prevent it from defaulting on its public debt.

The ministers said in a statement after their meeting in Luxembourg that they believe the emergency loans will be released by mid-July. The timetable depends, however, on the Greek parliament passing laws on fiscal reform and selling off state assets.

"I cannot imagine for one second that we will commit to finance Greece without knowing that the Greek parliament has voted," Eurogroup President and Luxembourg's Prime Minister Jean-Claude Juncker said.

Dutch Finance Minister Jan Kees de Jager warned that Holland would disburse no money to Greece if its parliament did not approve cuts to the tune of 28 billion euros. Privatization is expected to generate some 50 billion euros in savings.

The non-eurozone members of the Group of Seven (G7) industrialized nations - the United States, Canada, Japan and Britain - also participated in the meeting via conference call, highlighting the global concern regarding Greece's debt woes.

National accord

Greek Prime Minister George Papandreou on Sunday asked parliamentarians and political parties in his country to forge a "national accord" and back him in a confidence vote amid a debt crisis that threatens to cripple the country's economy.

Wolfgang Schäuble
Germany's finance minister reportedly has come up with a compromise rescue planImage: dapd

"I have asked for a renewal of the confidence in the government because the country finds itself at a crucial point," George Papandreou said at the opening of a debate on a parliamentary vote of confidence in the reshuffled Greek cabinet.

"The consequences of a violent bankruptcy or exit from the euro would be immediately catastrophic for households, the banks and the country's credibility," Papandreou told parliament.

Arriving at the Luxembourg meeting, new Greek Finance Minister Evangelos Venizelos said Greece remained fully committed to the EU/IMF financial aid program and achieving its targets.

"It is a great opportunity for me to repeat the strong commitment of the Greek government and the strong will of the Greek people for the implementation of the program," he told reporters.

"We can achieve our target, thanks to the efforts of our people, and thanks to the co-operation and the assistance of our partners."

In May last year, the EU and IMF agreed to lend Greece 110 billion euros, but the loan is conditional on the government implementing a series of austerity measures. The move has sparked nationwide strikes, rallies and protests on the streets of Athens.

Voluntary rollovers

The Eurozone finance ministers also backed a compromise between Germany and France that calls for private lenders to finance Greece's second bailout, expected to top 100 billion euros, through "informal and voluntary rollovers." Banks, insurers and investment funds can voluntarily decide to buy new bonds with longer maturities.

ECB headquarters with a eurosymbol in the foreground
The European Central Bank is against any defaultImage: Fotolia/interlight

Berlin failed to win support for a plan that would have had private lenders swap their bonds for new ones with a seven year maturity, giving Greece more time to get its finances in order.

"It has to be made clear that the risk will not be carried unilaterally and alone by the community of taxpayers," German Finance Minister Wolfgang Schäuble said as he arrived in Luxembourg.

This "rollover" option is favored by the ECB and France because it avoids the risk of rating agencies declaring Athens in default, which would send shock waves through the global financial system.

Author: Spencer Kimball, Gabriel Borrud (AFP, dpa, Reuters)
Editor: Mark Rossman