EURO ZONE finance ministers have told Greece to intensify its austerity drive, saying the country must make yet more budget savings if it is to secure the release of a crucial €8 billion rescue loan.
After Greece declared it would still miss key fiscal targets under its new budget package, the ministers have upped the stakes by cancelling a meeting next week at which they had planned to release the new loan.
Greece has been arguing it will run out of cash this month if it does not receive the next round of aid.
However, the president of the group of euro zone countries Jean-Claude Juncker said the money would not be paid until next month. Mr Juncker stressed the change of schedule still meant Greece would be in a position to meets its financial obligations. He insisted the country would not default or be ejected from the euro, but opened the door for the revision of a July deal in which Greece’s creditors have been asked to agree a voluntary 21 per cent “haircut” in their investment in Greek bonds.
“We welcomed the bold additional measures taken by Greece. These measures will contribute towards reaching the agreed targets for 2011 and 2012,” Mr Juncker told reporters early this morning in Luxembourg.
“We call for rapid legislation and the entry into force of these measures. We also urge the Greek government to agree with the troika on additional consolidation measures to close any remaining fiscal gaps in 2013 and 2014 and to accelerate privatisation plans.” The ministers met for seven hours last night in scheduled talks which broke up shortly before midnight.
“We had no one advocating a default for Greece. Everything will be done to avoid that and it will be avoided and nobody was advocating an exit of Greece out of the euro area,” Mr Juncker said.
“I have to firmly deny all these rumours indicating that Greece could be invited or decide to leave the euro area and I have to further deny any kind of rumour concerning Greek default.” Mr Juncker would not say whether Greek investors would be asked to incur larger losses on their holdings of Greek bonds, saying it was better for discussions on the July deal to take place in private.
He said, however, that conditions had changed since then. “These are technical revisions we are discussing.” The talks came after a new outbreak of turmoil in markets threatened the stability of the Franco-Belgian bank Dexia, a sign the uncertainty over the fate of Greece is stoking fresh tension in Europe’s banking system.
French banks came under heavy pressure but the greatest losses were incurred by Dexia, whose directors were called to an emergency meeting last night to discuss whether the bank should be recapitalised.
Any effort to boost Dexia’s capital would add to the clamour from the International Monetary Fund for a bigger recapitalisation of weakened euro zone banks, something European leaders are loath to do.
In a further sign of strain, Spanish and Italian borrowing costs rose as investors bought low-risk German debt and the euro fell to new lows against the US dollar.
The euro zone ministers had already signalled they would not move immediately to pay the loan Greece needs to avert default in the coming weeks. However, the cancellation of a meeting planned for Thursday week means Athens will have to go further to satisfy its international sponsors.
In spite of claims from the government in Athens that the latest round of talks with the EU-IMF bailout “troika” are largely complete, a senior European source said international inspectors expect to remain in the city until the end of the week.
Greek finance minister Evangelos Venizelos adopted a defiant stance yesterday saying his country was suffering from “structural difficulties” in its economy.