“In short: no disbursement without implementation,” Luxembourg Prime Minister Jean-Claude Juncker said in Brussels late yesterday after chairing emergency talks of euro-area policy makers. He set another extraordinary meeting for Feb. 15.
The refusal to deliver a 130 billion-euro ($173 billion) bailout for Greece reflected the euro area’s frustration with the country’s bickering politicians and the prospect that they may again backtrack on fiscal commitments not passed into law.
Facing general strikes and mounting opposition to cuts in wages, pensions and government spending, Greek Finance Minister Evangelos Venizelos said the parliamentary vote set to begin this weekend amounted to a ballot on euro membership.
“If we see the salvation and future of the country in the euro area, in Europe, we have to do whatever we have to do to get the program approved,” Venizelos said in Brussels.
Resolution of the aid talks, which have dragged on since July, would allow Greece to make a 14.5 billion-euro bond payment on March 20 and contain the threat that speculators will target debt-addled nations including Italy and Portugal.
“The euro zone needs to be stabilized,” Irish Finance Minister Michael Noonan said.
Rising Unemployment
Europe’s hardline stance follows more than two years in which Greece repeatedly failed to carry through promised reforms to tackle its uncompetitive economy and meet the conditions for aid. Greece blamed its shortcomings on a recession deeper than first expected and which is now set to worsen with reports yesterday showing unemployment jumping to 20.9 percent in November and industrial production slumping.
“We can’t live with this system while promises are repeated and repeated and repeated and implementation measures are sometimes too weak,” Juncker said.
Negotiations over another bailout began seven months ago and Greece’s participation in the euro first came into question when then-Prime Minister George Papandreou threatened in October to hold a referendum on austerity.
Yesterday’s gathering, attended by International Monetary Fund chief Christine Lagarde and European Central Bank President Mario Draghi, came hours after Greek Prime Minister Lucas Papademos and party chiefs ended a week of meetings with an agreement on a package of fresh budget cuts.
Shares Climb
European stocks rose yesterday for the first time in four days and the euro reached a two-month high against the dollar as the Athens accord spurred optimism over enactment of the financial lifeline and debt-swap agreement needed for Greece to dodge default and economic collapse.
Europe’s finance ministers were less effusive. Juncker said aid was dependent on Greece detailing 325 million euros in more spending cuts, legislation to implement the measures and all of its major party leaders signing up to the program in writing so they retreat before upcoming elections.
“This agreement will be very difficult to sell when the principals, those who have agreed, have to go to their constituents,” Mohamed A. El-Erian, chief executive and co- chief investment officer of Pacific Investment Management Co., said in a radio interview yesterday on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.
Debt-Reduction Target
Greece is seeking to reduce its debt to 120 percent of gross domestic product by 2020 from 160 percent last year. The latest measures are aimed at delivering budget reductions totaling 1.5 percent of GDP this year and range from a 20 percent paring of the minimum wage to lower pension payments and immediate job cuts for as many as 15,000 state workers.
With European officials signaling investors will soon accept a debt swap that would impose losses of about 70 percent of their Greek bond holdings, the European Central Bank came under pressure to offer additional relief.
“The ECB must look, within the framework of its independence, what sort of contribution it can make,” Juncker said.
Draghi yesterday left open the possibility of passing up some the profits on the Greek bonds the central bank bought during the crisis. He nevertheless rejected selling them to Europe’s temporary bailout fund at a loss because doing so would amount to “monetary financing” of governments, which is banned by European treaties.
Bond Swap
Bondholders met in Paris yesterday to discuss accepting an average coupon of as low as 3.6 percent on new 30-year bonds in the proposed debt swap. An agreement would slice 100 billion euros off more than 200 billion euros of privately-held debt and a formal offer must be made by Feb. 13 to allow all procedures to be completed before the March 20 bond comes due.
European Union Economic and Monetary Affairs Commissioner Olli Rehn said the deal is “practically finalized.” The Institute of International Finance, which represents investors, said it welcomed progress made by Greece and look forward to the debt swap being completed next week.
“The Greeks understand that it’s not five minutes to midnight but 30 seconds to midnight,” Luxembourg Finance Minister Luc Frieden said.
To contact the reporters on this story: Simon Kennedy in Brussels at skennedy4@bloomberg.net; Jonathan Stearns in Brussels at jstearns2@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
http://www.bloomberg.com/news/2012-02-09/greece-rebuffed-on-aid-package-as-austerity-vote-raises-risk-of-euro-exit.html
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