Europe May Withhold Half of Greek Payment

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Europe May Withhold Half of Greek Payment
By James G. Neuger and Jonathan Stearns - Jun 19, 2011 10:56 AM PT

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Demonstrators gesture and wave Greek flags in front of the Greek parliament building during protests against austerity cuts in Athens. Greek Prime Minister George Papandreou aims to quell growing dissent within his Socialist party over deeper austerity measures as voters' patience wears thin and public protests mount. Photographer: Kostas Tsironis/Bloomberg

Belgian Finance Minister Didier Reynders. Photographer: Jock Fistick/Bloomberg
European governments weighed withholding half of Greece’s next 12 billion-euro ($17.2 billion) aid payment, seeking to keep the country solvent while maintaining pressure on the government to slash the debt that pitched the euro area into crisis.
Euro-area finance ministers may authorize only a 6 billion- euro loan to tide Greece through bond redemptions in July, while further aid hinges on Greek budget cuts, Belgian Finance Minister Didier Reynders said.
“We will in any case try to release the necessary funds for the short term,” Reynders told reporters before a meeting of euro-area finance ministers in Luxembourg tonight.
Europe’s financial brinksmanship ran in parallel with Greek Prime Minister George Papandreou’s effort to save his government from collapse and win parliamentary backing for spending cuts, tax increases and state-asset sales needed to keep bailout funds flowing.
Tonight’s euro-area finance ministers’ meeting coincided with the start of a three-day Greek parliamentary debate in Athens over a confidence vote in a new cabinet at what Papandreou called a “critical crossroads.” Papandreou has 155 seats in the 300-seat parliament.
Papandreou said he planned to hold a referendum later in the year for changes to the constitution that would reform the political system in the country. The prime minister said his goal was to tackle the root causes of the country’s debt and deficits that are “symptoms of the illness, not the cause.”
‘Strong Commitment’
The new Greek finance minister, Evangelos Venizelos, who was named in a cabinet overhaul two days ago, came to Luxembourg with a “strong commitment” to the planned 78 billion euros in budget cuts that provoked street protests last week.
“We can achieve our target thanks to the efforts of our people and thanks to the cooperation and the assistance of our partners,” Venizelos said.
More than 47 percent of 1,208 Greeks surveyed by Kapa Research SA for To Vima newspaper oppose the wage and spending cuts and higher taxes, and want early elections. Almost 35 percent said the package should be approved.
Germany, which as Europe’s largest economy is the biggest guarantor of aid packages to Greece, Ireland and Portugal, insists on an “ambitious” economic overhaul in Athens, Finance Minister Wolfgang Schaeuble said.
‘Fundamental Consensus’
“We will surely work on laying the groundwork for paying out the tranche,” Schaeuble said. “It also depends on Greece making the necessary decisions with a fundamental consensus of the political parties so that we can be confident that Greece will live up to its commitments.”
Germany raised the prospects for a second aid package on June 17 by dropping calls for a mandatory bond exchange that might lead rating companies to declare Greece in default. Chancellor Angela Merkel’s concession gave a lift to stocks, bonds and the euro, spurring optimism that Europe would get ahead of the debt crisis that has exposed the weaknesses of the 17-country currency union.
While Germany bowed to European Central Bank and French demands not to compel investors to buy new Greek bonds as old ones expire, the lines are blurry between a “voluntary” and “compulsory” rollover that would lead rating companies to declare Greece in default.
On the table are incentives for bondholders to maintain their exposure to Greece, said Luxembourg Prime Minister Jean- Claude Juncker, chairman of the talks. He ruled out an agreement tonight on a new three-year package for Greece, pointing to July for a “final and overall answer.”
To contact the reporters on this story: James G. Neuger in Luxembourg at jneuger@bloomberg.net; Jonathan Stearns in Luxembourg at jstearns2@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net




Papandreou Pleads for Unity Before Vote
By Maria Petrakis and Marcus Bensasson - Jun 19, 2011 7:43 AM PT

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Greek Prime Minister George Papandreou fended off calls for elections from opposition parties in parliament and appealed for support to push through austerity measures to secure additional funding and avert a “catastrophic” default.
“The country is at a critical crossroads,” Papandreou told parliament in Athens today, kicking off a three-day debate on a confidence motion in his new government. “It is in our hands to change the situation and that is our commitment.”
He called for the vote last week as the opposition rejected overtures for national consensus and his handling of the crisis led to defections from his party. Two ruling socialist lawmakers resigned on June 16, prompting Papandreou’s party to demand an emergency meeting and stoking investor concern that his grip was slipping and the chance of default growing.
Greece needs to secure parliamentary approval of a 78 billion-euro ($112 billion) package of budget cuts to ensure the payment of a fifth loan under last year’s 110 billion-euro bailout as European Union finance ministers meet today to debate the terms of a new funding package of a similar size.
Papandreou said dealing with the country’s debt to avoid “sudden death” should unite Greece’s political parties. “The new government has a duty to complete the talks,” he said.
Opposition
Antonis Samaras, leader of New Democracy, the largest opposition party, repeated his call for elections.
“We are being asked to give support to a government that only a few days ago was squabbling among itself,” he said. “You have lost the confidence of the Greek people.”
Papandreou on June 17 named Evangelos Venizelos as his finance minister to secure support from his allies, amid increasing criticism of new budget-deficit cuts. Papandreou now has 155 seats in the 300-seat chamber.
More than 47 percent of 1,208 Greeks surveyed by Kapa Research SA for To Vima newspaper oppose the measures, which include sales of state-owned companies, higher taxes on restaurants and new “crisis levies” on wages, and want early elections. Almost 35 percent said the package should be approved.
Unions have called strikes against the measures and protests outside the Parliament House are held on a daily basis. Papandreou said today he would call a referendum later this year on changes to the country’s political system and constitution to allay demonstrators’ concerns.
The debate on the motion began today and will end on June 21, two days before EU leaders meet to approve aid that will shield Greece from record borrowing costs for as many as three years. A new demonstration is planned for outside the Parliament House as lawmakers vote on the motion at midnight on June 21.
To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net;
To contact the reporter on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net.