Brussels, 10/02/2012 (Agence Europe) - Before the ink was dry, the agreement was being smudged. The agreement in principle among the three parties in the Greek coalition government started to come unstuck when the nationalist LAOS party refused on Friday 10 February to vote on Sunday in favour of the second Greek bailout agreed upon the day before by Lucas Papademos' government. Unconditional support in writing for the second bailout programme from the socialist party, PASOK, the conservative party, New Democracy, and LAOS was one of the three preconditions laid down by the Eurogroup on Thursday evening for the granting of aid of €130 billion to Greece, possibly on Wednesday 15 February. Several thousand Greeks have been demonstrating since Friday in opposition to the new round of austerity measures awaiting them.
The leader of LAOS, George Karatzferis, said that he couldn't vote in favour of the austerity programme because it was humiliating for Greece. Two months ahead of general elections in Greece, the far right LAOS party (which had four ministers in the cabinet) has left the coalition government. Even without the far right, however, the Papademos government has a comfortable majority as long as conservatives and socialists continue to back the programme, and even if some socialists, as expected, refuse to approve of the bailout package. On Thursday evening, Greek Finance Minister Evangelos Venizelos warned the conservative party, which is by far ahead of the other parties in the opinion polls, that it had to support the austerity package in the light of the ultimatum from the eurozone. He said New Democracy had to decide whether it wants Greece to remain in the euro and it must come out and say so. Likewise, if it wants Greece to leave the euro, it must say so openly. The convening of the Eurogroup meeting on Thursday had had a decisive impact on the three-party deal, explained Eurogroup chair Jean-Claude Juncker.
Eurozone finance ministers have put three preconditions on granting the second Greek bailout (aid of €130 billion and partial write-down of the country's debt in return for implementation of draconian public spending cuts and economic stimulus measures). The Greek parliament must endorse the austerity package on Sunday 12 February, an additional €325 million-worth of public spending cuts must be earmarked rapidly to ensure Greece meets its budget commitments, and the country's three main political parties must firmly pledge to implement the bailout programme, explained the chair of the Eurogroup, Jean-Claude Juncker, on Thursday evening.
Juncker repeatedly stated that no money would be forthcoming until Greece implements its macroeconomic and budget pledges, stressing the importance of getting the privatisation programme rolling, reforming the labour market and boosting the country's institutional capacity. In this connection, the Eurogroup urged the European Commission to issue proposals ahead of Wednesday's meeting to provide increased technical assistance to the Greek government and ensure closer monitoring of implementation of the austerity programme. EU Commissioner for the Euro Olli Rehn said that the Commission would be reinforcing its teams in Greece to help the country tackle tax evasion, reform the Greek tax department, put the privatisation programme into practice and ensure greater absorption capacity for EU Structural Funds, although full responsibility remained in the hands of the Greek government. He said that the idea of setting up a special bank account to reassure investors that their loans would be repaid had been explored (see EUROPE 10548), adding that the Commission's taskforce was already at work in Athens to facilitate Greek exports, help liberalise certain closed professions and work on getting banks to agree to provide finance to small business.
Doubts about whether Greece's debt is affordable. The Eurogroup took note of the agreement between the Greek government and its private sector lenders on a partial write down of the country's debt. The European summit says it has to be reduced from 160% of GDP to 120% by 2020, in other words removing €100bn of the total of €350bn through a write-down in the face value of Greek bonds. The Commission is pleased that 99% of the write-down has been agreed upon and Rehn said it was expected to be formally agreed upon on Wednesday, along with the second bailout. On Friday, however, Germany's finance minister, Wolfgang Schäuble, is reported to have told German MPs that the Greek write-down would not achieve the desired reduction in its debt, a view shared by Greece's other big lender, the IMF - hence the request for the ECB, which owns €40bn of Greek bonds, to contribute to the write-down in order to make Greece's debt affordable. On Thursday, the head of the ECB, Mario Draghi, said that the ECB could at most agree not to make any profit on the bonds that it holds. He said that selling Eurosystem Greek bonds to member states through the European Financial Stability Fund would not amount to being a lender of last resort (which is not allowed under current EU treaties) as long as any losses from the sale were not absorbed. (MB/transl.fl)