20 June 2011 Last updated at 14:19 ET

Greece: Eurozone ministers delay decision on vital loan

 

Many Greeks are opposed to further cuts, which the government says are absolutely crucial

Eurozone finance ministers have postponed their decision on a 12bn-euro ($17bn; £10bn) loan to Greece until it introduces further austerity measures.

The ministers said they expected to pay the latest tranche of a much larger aid package by mid-July.

But its release depends on the Greek government surviving a vote of confidence on Tuesday.

Parliament then must also pass 28bn euros worth of new spending cuts and economic reforms.

This latest tranche - of a 110bn-euro European Union and International Monetary Fund aid package - is crucial as Greece needs the aid by July to pay off the creditors of its huge debts.

But there are also practical questions about whether the country can implement the reforms being demanded in return.

Greeks have already seen wages and pensions cut and there have been regular, mass demonstrations - even riots - in protest.

The latest public opposition to the cutbacks involves Greek workers at the state-owned electricity company, who are on the first day of a 48-hour strike.

Privatisation fears

After a seven-hour meeting in Luxembourg that ended early on Monday, the finance ministers said they would not approve the disbursement to Greece of the 12bn euros (8.7bn euros from eurozone governments and 3.3bn euros from the IMF) until the country's parliament passed the fiscal strategy and privatisation laws.

Asked how Greece could privatise a large state-controlled company every 10 days, as the current plans envision, Luxembourg Prime Minister Jean-Claude Juncker replied: "They will have to do so."

"This is something that affects me greatly," said Mr Juncker, who also chairs the meetings of the 17 eurozone finance ministers. "You look at the reaction of the people on the streets. You see they are rebelling."

The EU's economic and monetary affairs commissioner Olli Rehn said he was "certain that Greece will be able to take the decisions needed because the alternative is so much worse".

Greek bail-out timeline

• May 2010: EU and IMF agree bail-out package to prevent Greece defaulting on its debts; in return, Greece agrees to make 30bn euros of budget cuts over the next three years
• February 2011: EU and IMF experts tell Greece it must make further cuts to keep recovery on track
• April 2011: EU figures reveal Greek deficit revised up to 10.5% of GDP, worse than previously thought
• May 2011: Greece begins privatisation programme but is warned the IMF may not release more funds as Athens cannot guarantee it will remain solvent for next 12 months

• Q&A: Greek debt crisis
• Viewpoint: Politics of Greek crisis

The IMF said in a report that the eurozone's prospects depended on Greece and other bailed-out members righting their economies.

"A broadly sound recovery continues, but the sovereign crisis in the periphery threatens to overwhelm this favourable outlook," the body said.

In an effort to get the bills passed in parliament, the Greek prime minister last week reshuffled his cabinet, including appointing a new finance minister: Evangelos Venizelos.

"We have plenty to do, on a daily basis," Mr Venizelos said. "The political time has been compressed a lot. Each day is of extreme importance and hence we cannot afford to waste a single hour."

The government faces a vote of confidence on Tuesday but opposition parties are split over how to cut the country's growing budget deficit.

"In light of the government's thin majority of currently only four votes, support of the Greek parliament for more austerity measures is far from certain," said Tobias Blattner, a former European Central Bank economist who works at Daiwa.

New aid

A new bail-out package about the same size as the first was also agreed in principle by EU finance ministers on Sunday.

The new aid package, to be outlined by early July, will include loans from other eurozone countries.

It is also expected to feature a voluntary contribution from private investors, who will be invited to buy up new Greek bonds as old ones mature.

Mr Juncker said that money had to be freely given - or it would be seen as a technical default on debt repayments: "It is absolutely clear that no pressure will be put on the financial institutions, so as to avoid a Greek selective default. Voluntary means voluntary."

If Greece were to default - or seen to be in default - it would mean massive losses for European banks that hold Greek debt, including the European Central Bank.

Officials said the new plan was expected to fund Greece into late 2014 and total about 120bn euros.

Inspectors for the EU and IMF will make another visit to Athens on Tuesday in what the European Commission said would be a "technical mission".

The visit, which comes after teams from both bodies have spent months poring through the country's accounts, is unscheduled and the Commission did not say what its objective would be.

Stock markets and the euro fell early on Monday, pressured by the lack of resolution to the Greek crisis.

Leading indexes in Frankfurt, Paris and London were all down around 1% and the euro lost 0.5% against the US dollar in early trading, but stock markets and the euro later recovered to show only minor falls.