Some eurozone ministers doubts Greece’s austerity pledges
All the elements are in place for agreement on a new bailout loan for Greece, the French finance minister has said, ahead of a meeting of eurozone finance ministers in Brussels.
Athens needs the 130bn euros (£110bn; $170bn) in order to avoid bankruptcy in mid-March, when a huge repayment on its governmental debt must be made.
Haggling was likely to continue “until the very last moment”, warned Greek Finance Minister Evangelis Venizelos.
This is Greece’s second bailout.
French Finance Minister Francois Baroin said Greece could not wait any longer.
Here is the gamble: Ignoring the reality of a country in decline, more austerity is demanded by EU officials and finance ministers. Greece has to fire 150,000 public sector workers by 2015. The minimum wage will be cut by 22%. Pensions of more than 1,300 euros (£1,079; $1,709) a month will be cut by 12%.
It is hard to recall when such spending cuts were demanded of a country in economic freefall. The challenge for the EU is immense. It will define their reputation for years to come. Will they end up rescuing a country or breaking it?
When questioned over the strategy, Greek ministers reply by asking, “what is the alternative?” Greek ministers and European officials vividly describe the catastrophe if Greece defaults. “If there is a default,” said the German centre-right MEP Elmar Brok, “then there would be no pensions, no salaries at all. It would become a failed state.”
No-one pretends that default would be an easy option. There would be a run on the banks and, at the most elemental level, there would be the question of how soon a new drachma could be printed and distributed.
But those who oppose the new bailout package argue that Greece is not being saved from the fate of a failed state, but being pushed into one – and for years to come.
The rescue plan would also write off 100bn euros of debt, with private lenders accepting a 70% reduction in what Greece owes them.
In return, they would receive cash and new bonds, expected to mature in 30 years’ time.
Mr Baroin said he would plead for the deal at Monday’s meeting of eurozone finance ministers.
“All the elements are in place… both with the bankers, private sector creditors, and public sector creditors, the states and central banks,” he told Europe 1 radio.
Mr Venizelos said he now expected the “long period of uncertainty” to end.
“The Greek people send to Europe the message that they have made, and will make, the necessary sacrifices for our country to regain its position of equality within the European family,” he said in a finance ministry statement issued in Brussels on Monday.
After five straight years of recession, Greece now has a debt greater than 160% of its Gross Domestic Product (GDP).
Eurozone leaders and the IMF said in October that Greek debt should be reduced to the more sustainable level of 120% of GDP by 2020.
Successive rounds of austerity measures, demanded by the EU, the IMF and the European Central Bank – Greece’s international creditors – have failed to restore growth and have provoked clashes between protesters and police.
The Greek government fell last year after ex-Prime Minister George Papandreou called for a referendum on the eurozone rescue package.
He was replaced by Mr Papademos, an unelected technocrat who is expected to lead Greece until parliamentary elections in April.
Measures passed by parliament last week set out 3.3bn euros’ worth of cuts to salaries and pensions, and health and defence spending.
Several thousand people protested in Athens on Sunday against further cuts agreed to by Mr Papademos’ cabinet on Saturday – but the numbers were far reduced from the tens of thousands who protested last week.
US Treasury Secretary Timothy Geithner said the US was encouraging the International Monetary Fund (IMF) to support the bailout, but it is not clear how much the IMF will contribute.
Some eurozone finance ministers doubt Greece’s commitment to its spending pledges and want strong mechanisms to ensure its debts are paid.
It is not yet clear how the eurozone intends to keep the pressure on Greece to ensure it fulfils its commitments, says the BBC’s Europe editor, Gavin Hewitt.
And, he adds, there are doubts that even with the bailout Greece will be able to reduce its debt to a sustainable level.
Funds from elsewhere may need to be found. A first rescue fund of 110bn euros in 2010 was not enough to avert the crisis.