Hours of talks between eurozone finance ministers on the imploding finances of Greece broke up early Monday morning without the ministers signing off on a vital installment of rescue loans needed to avoid bankruptcy next month.
Greece will get the next 12 billion euros ($17.07 billion) of its existing 110 billion euro ($156.47 billion) bailout package in early July, but only if it manages to pass 28 billion euros in new spending cuts and economic reforms by the end of the month, said Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the regular meetings of the 17 eurozone finance ministers.
"We have to, of course, await this vote" by the Greek parliament, Juncker said as he left the meeting.
However, Juncker said that as long as the parliament supported the new measures, he was certain that Greece would also get a second bailout — on top of the existing one — that will keep it afloat over the coming years as it works to restore its struggling economy. Greek Prime Minister George Papandreou said Sunday that his country was in talks for a new bailout similar in size to the first one.
In a statement, the ministers said that the private sector would contribute to the new package of rescue loans on a voluntary basis. Banks and other private creditors will be asked to buy up new Greek bonds as old ones mature, thereby reducing the amount of money other eurozone countries and the International Monetary Fund will have to provide.
"No pressure may be exerted on the private sector," Juncker stressed, since any sign of coercion could force rating agencies to consider the bond-rollover as a partial default. Such a negative rating could take down Greek banks and further shake other struggling euro countries like Ireland and Portugal, economists have warned.
Juncker said he planned to convene a special finance ministers meeting in the first days of July, where the remaining questions would be finalized. He said that because of the voluntary nature of the roll-over, it was too early to put a number on the contribution of the private sector.
The meeting of the 17 eurozone nations came after a tumultuous week that saw rioting on the streets of Athens, a Greek Cabinet reshuffle and days of market turmoil that sent borrowing costs spiking. A default by Greece could cause ripples around the world, disrupting the global economy similarly to the collapse of investment bank Lehman Brothers in 2008.
Just before the meeting broke up, the finance chiefs of the United States, Canada, Japan and the U.K. were updated on the discussions taking place in Luxembourg in a conference call limited to the Group of Seven rich nations, underlining the heightened level of concern over the small euro nation.
A little over a year after its first bailout, Greece is trailing its financial goals. Without passing the new austerity measures, its budget deficit will remain above 10 percent of economic output this year — far from the promised 7.5 percent. The country's debt is expected to reach 160 percent of gross domestic product by the end of 2011, while its economy continues to shrink.
The harsh austerity measures and the bleak outlook for the depressed Greek economy and the resulting street protests are increasingly challenging the survival of Papandreou's government.
Opening a three-day parliamentary debate that will culminate in a confidence vote Tuesday, Papandreou blamed Greece's bloated and inefficient state sector for bringing the country to its knees. He vowed deep changes with a fall referendum on the constitution that would make it easier to get rid of inept officials or workers.
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