Ministers delay new Greek deal to autumn

GREECE WAS warned that its sovereignty would be “massively limited” in the next phase of its bailout as euro zone finance ministers delayed seeking agreement on a second rescue pact for the country until September.

The ministers had been expected to pursue an outline deal at talks in Brussels today and tomorrow. At a teleconference on Saturday night, however, they resolved to wait until the autumn.

The development came as the ministers, who cancelled talks planned in Brussels last night, authorised the release of a crucial €12 billion rescue loan to Athens.

The ministers and the IMF withheld this loan for a fortnight pending the Greek parliament’s support last week in favour of a drastic new austerity and privatisation programme.

With IMF approval of its €3 billion portion of the loan expected next Friday, the way is now clear for Greece to receive the money in time to avert defaulting on its debt later this month.

The political and financial turmoil in Greece has rattled markets, stoking fear in Dublin that the Government’s recovery effort could be derailed.

Minister for Finance Michael Noonan took part in the teleconference but his spokesman had no comment yesterday on the proceedings.

The rescue plan is deeply controversial in Greece, where a general strike last week prompted two days of rioting in Athens.

Euro zone officials fear that sustained political pressure will lead the government to backtrack on the execution of the fiscal and privatisation measures, as they did in the recent past.

To guard against slippage the ministers said in a communiqué on Saturday that the five-year plan would be “supplemented by large-scale technical assistance” from the European Commission and member states.

Greece now faces the prospect of external involvement in its tax collection and in its €50 billion plan for privatisation. Luxembourg’s prime minister and Euro Group president Jean-Claude Juncker said in a weekend interview that the effort to assert control over the country’s finances would involve a big curtailment of its sovereignty.

“One cannot be allowed to insult the Greeks. But one has to help them. They have said they are ready to accept expertise from the euro zone,” Mr Juncker told Focus magazine in Germany. “The sovereignty of Greece will be massively limited.”

Mr Juncker said the Greek privatisation initiative would require a “solution” based on Germany’s “Treuhand” agency, which sold thousands of East German state-owned firms in the early 1990s at a huge loss and eliminated millions of jobs Mr Juncker also said the Greek tax system was not “fully functional”.

The decision not to seek a second bailout deal immediately reflects lingering uncertainty over a scheme to enlist private creditor participation, with the stance of the European Central Bank and international credit rating agencies still unclear. Further doubt surrounds Finnish demands for Greece to provide collateral in return for new loans.

“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, inter alia, required programme financing is in place,” the ministers’ communiqué said.

The reference to “the coming weeks” was held to point to a longer timeframe that previously anticipated, something confirmed by Greek minister Evangelos Venizelos.

“Euro Group decided through a teleconference today to work out a new programme on time, before mid-September,” he said.

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

The ministers said they took note of a statement issued by the Institute of International Finance in which the global banking lobby said its members were willing to take write-downs on their Greek debt holdings to help develop a solution to the debt emergency in the euro zone.

German minister Wolfgang Schäuble said a new aid plan for Greece was conditional on the country executing agreed reforms.