GREEK POLITICAL leaders are coming under intense pressure from Europe and the International Monetary Fund to settle their differences over the country’s bailout in the run-up to a crucial confidence motion in premier George Papandreou next week.
Amid renewed tension in sovereign debt markets, EU economics commissioner Olli Rehn said he was confident Greece could avoid a “default scenario” but bemoaned the collapse of talks two days ago on the formation of a government of national unity.
“It is regrettable that the efforts to build national unity failed . . . Indeed the efforts needed to avoid a default – which would be a catastrophe for Greece – are the responsibility of all political forces,” Mr Rehn said in a statement.
“The next days will be critical for the financial stability and economic recovery in Greece and Europe. I trust all leaders in Greece and Europe realise their responsibility and will act accordingly.”
Similar concerns were expressed by the IMF. “I am concerned the situation has changed very dramatically in the past 24 hours,” said Zhu Min, a special adviser to the IMF’s managing director. “We have a team in Athens ready to conclude a review and move things forwards but now, given the situation, there is a lot of uncertainty so we are very cautiously, very closely monitoring the process.”
The collapse of the talks in Athens prompted Mr Papandreou, who faces cabinet and backbench resistance to a new austerity plan, to prepare a cabinet reshuffle. He has also proposed a confidence motion in his leadership, likely to be taken next Tuesday.
With a number of MPs already threatening to defect, this high-risk strategy has fuelled mounting anxiety in Brussels and other European capitals over Mr Papandreou’s precarious political position.
There is growing doubt that the prime minister will be able to execute a swingeing reform package agreed with the EU-IMF “troika”, which has said the release of the next €12 billion under the country’s bailout is contingent on parliamentary support for the plan.
The confidence motion comes the day after EU finance ministers are due to conclude two days of talks on the Greek bailout.
Greece needs €12 billion next month to avert default but the IMF has been threatening to block off its €3 billion portion due to uncertainty over the country’s medium-term funding outlook.
The IMF is widely expected to agree to release the money on the strength of a political commitment by euro zone finance ministers to develop a second bailout for Greece.
The country will need a new aid package to bridge an anticipated funding gap next year, but the ministers have now pushed talks on such a pact into next month. They had been trying to agree on the second bailout and on release of the €12 billion by next week.
The delay in the talks follows the deepening political crisis in Greece and an intensification of divisions in Europe over the participation of private creditors in any new rescue effort.
Germany wants a “quantified” contribution for private bond investors but the European Central Bank insists that any burden-sharing measures should be purely voluntary.
Although this standoff raises questions about the €3 billion due from the IMF, Mr Rehn said he was “confident” that euro zone finance ministers would be able to decide on the release of the new loans at an emergency meeting next Sunday in Luxembourg.
The ministers are also due to hold scheduled talks on Monday.
“The euro group on Sunday/Monday will discuss the contents and conditions of a successor programme for Greece, and the nature of private sector involvement in this, with a view to taking decisions at the next euro group meeting of July 11th,” Mr Rehn said.
“By doing so, we will avoid the default scenario and pave the way for an agreement on the medium-term strategy. It has been difficult, but I strongly believe that with this two-step approach, in agreement with IMF, we can avoid any accident scenario.
“It means that the funding of the Greek sovereign debt can now be ensured until September, while we take the decisions for the medium term, beyond September, in July.”