After the Greek parliament voted to give everyone more time to come up with a better solution, Eurozone finance ministers agreed to release the promised €12billion to Greece to avoid an immediate default.
But those same finance ministers have now delayed discussions on the details of a second bail-out for Greece, thought to be around 120bn euros, needed to pay the bills until the end of 2014. According to an Irish Times report today, the Greek finance minister Evangelos Venizelos has stated, “Euro Group decided through a teleconference today to work out a new programme on time, before mid-September”. They had been expected to seek an outline deal this week. And by the autumn there might be a new, less accomodating, Greek government.
From the Irish Times report
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.
Of course, Mr Juncker may not be an entirely reliable witness…
And there are indications that some of the credit rating agencies are less than enthusiastic
Credit ratings agency Standard & Poor’s cast new uncertainty today over euro zone efforts to rescue debt-crippled Greece by warning it would treat a French bank plan for a rollover of privately-held debt as a default.
The threat abruptly ended a relief rally in stock and bond markets after Greece adopted a new, tougher austerity plan last week, prompting euro zone finance ministers to agree on Saturday to throw Athens a €12 billion short-term lifeline.
Bank stocks fell in Europe and the cost of insuring Greek debt against default resumed an inexorable climb only briefly interrupted last week when the Greek parliament backed a new wave of spending cuts, tax rises and public asset sales.
Investors fear that a default by Greece, which has seen violent protests against austerity, would send shockwaves through the world finance system with some analysts saying it could call the whole euro zone into question.
While S&P’s statement did not deal a death blow to the complex French rollover plan – seen by critics as a bailout for creditor banks rather than for Greece – it highlighted the difficulty of arranging private sector involvement in a second rescue package.
As for the wider picture?
The existential crisis will remain… And, for supporters of the “European Project”, the longer-term options are stark.
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