EU SUMMIT:EU LEADERS have turned their attention yet again to Greece as officials race to finalise all elements of its €130 billion second bailout within the next week.
Having brought the two-month negotiation of the new fiscal treaty to a close on Monday night, the leaders are now trying to set aside deep divisions over the next EU-IMF programme for Greece.
Anxiety remains that any failure to reach an accord could lead the country to default, something which has undermined confidence in fellow bailout recipient Portugal in recent days. “The deal has to be done in approximately a week’s time. If there is a real need, things can go very, very fast,” said a high-level European official involved in the Greek talks.
The official said all elements of the complex, interlinked package must be worked out before the deal can be struck. This tallied with the view in Athens, where finance minister Evangelos Venizelos said the government cannot complete a debt restructuring deal without a definitive pledge of new rescue aid. “In the next few days, our country needs to take difficult decisions and to complete a gigantic effort which rewards the sacrifices, the achievements and the hopes of the Greek people,” he said.
Although preparations are in train for an emergency meeting of euro zone finance ministers next Monday in Brussels, the talks will not be convened until Greece reaches agreement with private creditors to cut the value of its national debt by €100 billion.
Greece is on the cusp of a voluntary private sector involvement deal but the acknowledgement that the agreement will fail to bring its debt to the target of 120 per cent of gross domestic product has complicated the effort. Definitive agreement must be reached soon to ensure arrangements are in place before a big bond redemption next month.
The debt overhang has led to a build-up of pressure for official sector involvement via a contribution from the ECB, something it is reluctant to do but has not ruled out definitively in discussions behind the scenes. This is highly controversial, although the option of the ECB forgoing profits on the Greek bonds it holds is under active consideration.
At the same time, Greece’s failure to implement promised reforms has prompted deep frustration among its international sponsors and led Germany to push for the appointment of an EU budget commissioner with powers to override the government. The EU official said Berlin’s demand was not tenable but discussions were under way on alternative measures to ensure compliance.
Also in question are the policy conditions attached to the second bailout. “Wage policy is really in the heart of the matter,” the official said. The situation in Greece has fanned pressure on Portugal, whose notional borrowing rates have spiked to record levels in the past week.
However, prime minister Pedro Passos Coelho insists his government is not seeking more time to repay loans under its €78 billion bailout or additional rescue funding.