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No speedy EU approval for Greece

Feb 15 2012 08:27 Reuters

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Brussels/Athens - Eurozone finance ministers have dropped plans for a face-to-face meeting on Wednesday on Greece's new international bailout, saying party leaders in Athens failed to provide the required commitment to reform.

With the European Union's patience at breaking point, ministers downgraded the talks to a telephone conference call, almost certainly killing off any chance they would approve a €130bn bailout on Wednesday which Greece needs by next month to avoid a messy bankruptcy.

Ministers in the Eurogroup said Greece had failed to say how it would fill a €325m gap in budget cuts promised for 2012, and to persuade all party leaders to sign a commitment to implement austerity measures after an election expected in April.

A government source said late on Tuesday that Antonis Samaras, who will probably be the next prime minister, would sign the commitment on Wednesday morning - again running up against a deadline and infuriating EU leaders.

Samaras has criticised the measures, which parliament passed early on Monday as rioters wrecked buildings across central Athens. He says the cuts could plunge the country, already in its fifth year of recession, into an even bigger slump.

When parliament debated the austerity package on Sunday he indicated that he would try to renegotiate the terms of the bailout, increasing doubt in the minds of European leaders.

"So far Samaras has not given a letter of commitment and this is a problem," a source familiar with the bailout negotiations told Reuters on condition of anonymity. Samaras' New Democracy party declined to comment.

Time is running out for Greece as it faces a chaotic default if it cannot meet €14.5bn in debt repayments due on March 20 and its brinkmanship has forced some EU leaders to suggest Athens should leave the eurozone currency union.

But European Council President Herman Van Rompuy said in Beijing leaders would do all they could to keep the 17 country eurozone together "because at the heart of the project, is the peace, prosperity and democracy in the European Union".

Said Van Rompuy: "So don't underestimate the strong political will to defend the eurozone and that's the message we want to convey." 

In China with European Commission President Jose Manuel Barroso to try to secure investment for the ailing union, the two leaders presented a vision of a stable bloc, committed to protecting its members.

China said it would not cut the share of euros in its reserves, maintaining its stance. Any bigger role in solving the debt crisis would be via the International Monetary Fund (IMF) and European Financial Stability Fund, or EFSF, China's central bank governor, Zhou Xiaochuan, said in a speech at a university.

Late meeting

Greece's cabinet negotiated late into Tuesday on solving the problem of the €325m hole in the €3.3bn of extra budget cuts the government has promised for this year.

The EU and IMF want Greece to account for every cent of budget cuts before they approve the rescue, which includes a bond swap, cutting the real value of private sector investors' bond holdings by some 70%.

There were signs of encouragement. The European Central Bank has decided to distribute profits from Greek bonds to member states, which they could decide to pass on to Athens as part of the debt deal, Governing Council member Luc Coene said.

But Greece's downward economic spiral has accelerated. Data on Tuesday showed that economy shrank 7% in the fourth quarter of last year, even more than the 5% contraction of the third quarter.

Greece is well on its way to suffering one of the biggest slumps of modern history. Gross domestic product (GDP) has contracted 16% from its peak and the austerity will make that worse.

Prime Minister Lucas Papademos has said that failure to back the bailout would consign Greece to economic catastrophe.

But with many Greeks suffering huge cuts in their living standards and young people burning and wrecking almost 100 Athens buildings in one night on Sunday, some people believe the catastrophe is already under way.

"On the current path - which is not sustainable in my view - we may very well see Greek GDP go down 25% - 30%, which would be historically unprecedented. It's a disastrous crisis for them," said Uri Dadush, at the Carnegie Endowment think tank in Washington.

That would put Greece in the same league as the United States, where the economy shrank 29% during the Great Depression.

"They're suffering. It's nasty," said Mark Weisbrot, co-director of the Center for Economic and Policy Research, another Washington think tank.

"If you could say with a reasonable probability that the worst was over, then that would be different. But you can't say that. They're in for a long nightmare."

imf  |  eu  |  greece
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