Europe moved to reopen funding to Greece’s stricken economy yesterday, hours after a fractious Greek parliament approved a tough bailout program in a vote that left the government without a majority and looking to new elections within months.
Greek Prime Minister Alexis Tsipras won the backing of parliament in the early hours of yesterday morning for the stringent reform measures demanded by Greece’s creditors, led by Germany, but was left weakened by a revolt in his left-wing SYRIZA party.
Greek Minister of the Interior Nikos Voutsis said that a snap election could be held in September or October “depending on developments.”
Photo: Reuters
The move by the Greek parliament was enough to persuade the European Central Bank (ECB) to reopen vital funds for the Greek banking system under its Emergency Liquidity Assistance (ELA) program, after eurozone finance ministers signaled they would unlock 7 billion euros (US$7.6 billion) in bridge loans.
“Things have changed now,” ECB President Mario Draghi told a news conference in Frankfurt. “We had a series of news with the approval of the bridge financing package, with the votes, various votes in various parliaments, which have now restored the conditions for a raise in ELA.”
Draghi said the ECB would increase ELA funding by 900 million euros, but he added that it was difficult to make decisions on Greece given the constraints of a program that was never meant to provide unlimited and unconditional support.
Finnish and Lithuanian lawmakers gave their approval to begin negotiations, a day before the German parliament was due to vote on the issue, while the European Commission said it believed an agreement on providing short-term bridge financing to Greece could come shortly.
However, German Minister of Finance Wolfgang Schaeuble underlined the risks still surrounding the negotiations, saying a temporary Greek “timeout” from the euro might still be a better option.
After a warning from the IMF this week that Greece’s massive public debt could not be managed without a significant writedown, Schaeuble said that a debt “haircut” was incompatible with euro membership and would mean Greece would have to leave the euro, at least temporarily.
“This would perhaps be the better way for Greece,” he told Deutschlandfunk radio.
European finance ministers held a conference call yesterday morning to agree on a plan for the 7 billion euros in bridging funds to enable Greece to meet its immediate debt service needs and avoid defaulting on an ECB repayment on Monday.
In a statement, they agreed “in principle” to start talks with Greece on a new, three-year bailout and also called on Athens to adopt a second set of reforms by Wednesday next week.
All 28 EU nations are expected to contribute, despite the reluctance of non-eurozone members such as Britain and the Czech Republic, after a compromise was found to use eurozone funds to guarantee their ring-fenced contributions.
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