Mon, Jul 04, 2011 - Page 10 News List

Greece to receive further 12bn euros

VOTE OF CONFIDENCE?The market still sees an 81% chance that Greece will default, and the German finance minister said Berlin was making preparations for such an event


Eurozone finance ministers agreed on Saturday to disburse a further 12 billion euros to Greece and said the details of a second aid package for Athens would be finalized by mid-September.

After a conference call, the 17 eurozone ministers agreed that the fifth tranche of the 110 billion euro bailout agreed with Greece in May last year would be paid by July 15, as long as the IMF’s board signs off on the disbursement. The IMF is expected to meet on Friday to approve it.

The payment will allow Greece to avoid the immediate threat of default, but the country still needs a second rescue package, which is also expected to total about 110 billion euros and which will now likely only be finalized in September.

Between now and then, finance ministers will work on the “precise modalities and scale” of the private sector’s involvement in the second aid package, which Germany hopes will eventually total around 30 billion euros.

Greece said it expected a final decision on a second bailout program by mid-September to keep the country financed.

“The Eurogroup decided through a teleconference today to work out a new program on time, before mid-September,” Greek Finance Minister Evangelos Venizelos said shortly after the finance ministers approved the 12 billion euro disbursement.

“What is crucial now is to implement parliament’s decisions on time and effectively,” he said.

The 12 billion euro payment will help Athens cover a 5.9 billion euro bond redemption next month, but the government still has a monumental hill to climb if it is to return to debt sustainability, with its debt-to-GDP ratio more than 150 percent.

Athens has repeatedly failed to meet budget targets laid down in the first bailout program, raising the risk that the crisis will spread across the eurozone if it remains unresolved.

Greece’s second financing program is to run from this year to 2014 and will come on top of the existing assistance package. As part of the package, Greece is expected to raise around 30 billion euros from privatization, while the EU and IMF will provide around 50 billion euros, split two-thirds to one-third.

“The precise modalities and scale of private sector involvement and additional funding from official sources will be determined in the coming weeks so as to ensure that ... required program funding is in place,” a statement from the Eurogroup read, indicating a -delay in the second program as they had been expected to finalize its details at a meeting on Monday next week.

“Ministers agreed that the main parameters of a multi-year adjustment program for Greece will revolve around a continued strong commitment to implementing fiscal consolidation measures ... and concrete structural reform and privatization,” the statement said.

EU leaders made a commitment to the second program at their last summit on June 23 and June 24, which should satisfy the IMF’s condition that the eurozone must promise to finance Greece 12 months ahead for the IMF to contribute.

Despite the release of the next tranche payment, which will provide breathing space for Athens, there is growing concern among EU officials that the strictures being imposed on Greece, including 28 billion euros of austerity measures between now and 2015, are too harsh and could cause longer-term damage.

The finance minister for Poland, which has just taken over the six-month presidency of the EU, suggested on Saturday that too much emphasis had been put on austerity and too little on growth in Greece.

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