Europe's creditor countries struggled to bridge divisions over a rescue of Greece yesterday, seeking more control over how future aid is spent as the clock ticked towards a possible default next month.
In a replay of the brinkmanship that marked the early stages of the Greek crisis two years ago, euro-area finance ministers extracted concessions from political leaders in Athens intended to pave the way for the endorsement of a €130 billion aid package next week.
While "further considerations are necessary regarding the specific mechanisms to strengthen the surveillance of programme implementation", Europe is set to make "all the necessary decisions" on Tuesday, Luxembourg Prime Minister Jean-Claude Juncker said after chairing a conference call of finance chiefs yesterday.
Greece's plea for more aid on top of the €110 billion awarded in 2010 has stirred recriminations on both sides of Europe's north-south economic divide, with taxpayers in better-off countries rebelling against further handouts.
Each day lost brings Greece closer to a March 20 bond redemption when it must make a €14.5 billion payment or become the first country in the euro's 13-year history to default.
Greece made "substantial further progress" by outlining €325 million in additional savings and providing written pledges from the leaders of its two main parties not to backslide on the budget cuts, Juncker said.
Greece has now met all conditions set by the European Union and International Monetary Fund for the lifeline, said Finance Minister Evangelos Venizelos after the 3-hour telephone consultations.
Before the call, Finland and the Netherlands had appealed for the postponement of a new programme until elections as early as April produce a full-time Greek government that replaces the caretaker Administration, one European official said. In that scenario, the euro area would arrange a bridge loan to get Greece past the March payment, the official said.
"Ultimately the question is whether Greece has the political will to sort out their economy and fulfil the conditions," Finnish Finance Minister Jutta Urpilainen said.
Juncker's post-call statement didn't address the question of a possible interim loan. It indicated that there is no accord yet on a proposal to set up an escrow account to ensure the aid money goes to paying creditors.
A delayed decision on public support for Greece until after the still-unscheduled election would risk snagging a separate component of the package: a bond exchange by private investors designed to wipe €100 billion off Greece's debt.
While some German finance officials see the merits of putting back approval of a multi-year aid programme until after the Greek election, Chancellor Angela Merkel hasn't made her stance clear yet, the European official said.
Buoyed by an uptick in opinion polls, unemployment at a two-decade low of 6.7 per cent and European backing for a German-designed fiscal discipline treaty, Merkel has warned of the risks of letting Greece default or pushing it out of the euro.
The leader of Europe's dominant economy is also under pressure from Italy's new prime minister, Mario Monti, who has emerged as the spokesman for economically depressed southern European countries struggling against German-imposed austerity. A former European commissioner who leads an interim government in Rome, the nonpartisan Monti said Greece was being put under unbearable strains and traced the origins of the crisis to moves by previous German and French leaders to soften the euro's deficit rules.
"The very tough approach being taken toward Greece today may lead us to regard this as being excessive, and it probably is," Monti told the European Parliament in Strasbourg, France, yesterday. "There are no good guys and bad guys. We all need to feel jointly responsible."
Greece has squandered credibility by missing targets for deficit reduction, economic reforms and asset sales that were set for the first aid package. As a result, the once-taboo notion of a departure or expulsion from the euro has crept into the mainstream political debate.
- Bloomberg