EU maintains pressure on Greece

Euro zone finance ministers kept up intense pressure on Greece today, saying it had to approve tougher austerity measures before a final decision is made on a further €12 billion in loans.

Early this morning, the ministers meeting in Luxembourg withheld the release of the €12 billion loan, saying they could not authorise the release of the money until the Greek parliament backed a swingeing new austerity plan. They said it was up to Greece to show concrete progress on plans to cut spending, raise taxes and generate other revenue streams.

"We are waiting for a decision from the Greek parliament. We are calling for not just the government, but the Greek opposition to support the plan," Belgian finance minister Didier Reynders said ahead of a second day of meetings in Luxembourg.

"We are increasing the pressure because there are precedents," he said, referring to Greece's not meeting commitments in the past and falsifying statistics. "We have to be sure that everyone is going to support the plan."

In Athens, anti-austerity demonstrators gathered in the central square outside parliament, but there were no new clashes with security forces. Power workers began a strike and blackouts were expected in some parts of the country later in the day.

In parliament, MPs are debating the highly unpopular plans to cut spending, further increase taxes and privatise state assets, measures already agreed with the EU, IMF and the European Central Bank to bring finances back into line.

Yesterday, Greek prime minister George Papandreou asked voters s to support the austerity steps and avoid a "catastrophic" default, appealing for them to accept deeply unpopular tax hikes, spending cuts and privatisation plans. "The consequences of a violent bankruptcy or exit from the euro would be immediately catastrophic for households, the banks and the country's credibility," Mr Papandreou said at the start of a confidence debate on his new crisis cabinet.

Inspectors from the EU and IMF will make a further visit to Athens this week - having just completed an inspection - to meet the new finance minister and examine some of the tax measures, the European Commission confirmed this morning.

Euro zone ministers seemed intent on delivering a message of tough love to Athens, which agreed a €110 billion programme with the EU in May last year and is expected to get a second package worth as much or more before long.

The fifth tranche of the first programme - the €12 billion payment - is due next month. Without it, Athens has warned that it could default on its debts, an event that would could wreak havoc on global markets and threaten other European sovereigns and banks.

While it seems likely that Athens will eventually get the next tranche, and a further emergency loan programme of around €120 billion euros up to the end of 2014 will also be agreed, the net result is only to buy Greece more time - the possibility of
a debt restructuring in the longer-term, or even default on a portion of its debt, has not gone away.

The euro weakened slightly against the dollar today and the cost of insuring Greek and Italian debt against default rose, reflecting concerns about potential contagion to other states on the euro zone periphery.

French and German business leaders said today that saving the euro is vital and urged other countries to help over-indebted nations regain control of their finances.

In a joint statement published in the afternoon daily Le Monde 48 corporate leaders, including Total chief executive Christophe de Margerie and BMW chiuef executive Norbert Reithofer said a break-up of the euro zone would be disastrous for Europe.

"There is no serious alternative to the common euro. The euro symbolises today's Europe," they wrote in the statement, which was also published in German media.

"A failure of the euro would be a fatal blow to Europe."

In a statement issued after a seven-hour meeting in Luxembourg that ended in the early hours of this morning, the euro zone finance ministers also announced they would put together a second bailout of Greece, which missed debt targets in the first rescue plan by big margins. To be outlined by mid-July, it will include more official loans and, for the first time, a contribution by private investors, who will be expected to maintain their exposure to Greece's sovereign debt market through voluntary purchases of new bonds as existing ones mature.

The statement did not say how large the new bailout would be, or give details of the private sector contribution beyond describing it as "substantial".

The ministers’ emergency meeting, their second in less than a week, comes as the turmoil in Greece stokes anxiety in Dublin that it could derail the Government’s effort to regain entry to private debt markets next year. As he arrived for the talks, Minister for Finance Michael Noonan said he wanted to ensure any deal to settle the Greek debacle carries no risk of a “contagion effect” for Ireland”.