Greece under pressure as finance ministers put brakes on bailout
Decision on €8bn Greek bailout delayed till October, while US secretary of state Geithner urges eurozone leaders to do more
guardian.co.uk, Friday 16 September 2011 20.08 BST
European finance ministers on Friday heaped pressure on the Greek government to accelerate its privatisation programme and implement deeper spending cuts, after they told Athens a crucial €8bn (£6.9bn) bailout payment would be delayed until next month.
Luxembourg prime minister Jean-Claude Juncker, who chaired a meeting of the eurogroup of single currency finance ministers in Poland on Friday, said officials recognised the renewed efforts by Greece to meet its fiscal targets, but a decision on releasing the next tranche of cash would not be taken until October.
The move was met with incredulity by Greek officials. They have already warned they will be out of money by mid-October and are reported to be making contingency plans to lay off public sector workers.
US secretary of state Tim Geithner, who flew to Poland on Friday to emphasise Washington’s fears of a second financial meltdown, urged eurozone countries to expand their bailout fund to better tackle the debt crisis. He warned the debt crisis posed a “catastrophic risk” to financial markets and added “What is very damaging [in Europe] from the outside is not the divisiveness about the broader debate, about strategy, but about the ongoing conflict … You need … to work together to do what is essential to the resolution of any crisis.”
A wider meeting of EU finance ministers, including the chancellor, George Osborne, will take place on Saturday in Wroclaw. They are under pressure to put aside their differences and agree an expanded bailout facility to calm fears of defaults across the continent’s southern states.
French bank shares, which have lost more than 50% of their value since July on worries that they could default if Greece goes bust, were under pressure again on Friday while Italy faces a ratings downgrade by Moody’s that could spook markets and trigger another round of selloffs.
Fears of a broader credit crunch, as banks refuse to lend to each other, has already forced the world’s major central banks to promise unlimited amounts of US dollars to European banks unable to access international money markets.
Eurozone policymakers remain deeply divided over their next move, with some German politicians contemplating the breakup of the currency club rather than commit further taxpayer funds.
In a 30-minute meeting with eurozone ministers, Geithner is understood to have pressed for the €440bn European financial stability facility (EFSF) to be scaled up to give greater capacity to combat the problems infecting not just Greece, but also Portugal, Spain, Italy and Ireland. Geithner also said the EU needed to end “loose talk” about a breakup of the euro and work more closely with the European Central Bank (ECB) on solutions. He said: “Governments and central banks have to take out the catastrophic risks from markets … [and avoid] loose talk about dismantling the institutions of the euro.”
His comments were leapt on by Austria’s finance minister Maria Fekter: “He conveyed dramatically that we need to commit money to avoid bringing the system into difficulty,” she said. “I found it peculiar that even though the Americans have significantly worse fundamental data than the eurozone, that they tell us what we should do and when we make a suggestion … that they say no straight away.”
She said there had been particular disagreement over suggestions that Europe should commit more money to fighting the crisis. When German finance minister Wolfgang Schäuble explained that would not go down well with taxpayers and that the only way to fund it would be a financial transaction tax, Geithner ruled any such tax out. “In these countries, there is a desire for a transaction tax,” Fekter said. “[Geithner] ruled that out.”
Inspectors from the ECB, EU and International Monetary Fund (IMF) are currently in Athens and should report back on progress in early October, European commissioner for monetary affairs, Olli Rehn said – meaning that the next disbursement of aid to Greece from its first bailout could be paid by mid-October.
Concerns that statistics from Athens failed to present an accurate picture of its finances were given weight after two members of the government’s statistics board resigned and another was quoted as alleging that 2009 deficit data had been artificially inflated in order to ensure bailout funds would be forthcoming.