Europe seeks to restore 7b euros in short-term funding

Source:Agencies Published: 2015-7-17 0:28:02

Riots in Greece erupt after austerity vote in parliament

Europe moved to re-open funding to Greece's stricken economy on Thursday, hours after a fractious Greek parliament approved a tough bailout program in a vote that left the government without a majority and looking to new elections within months.

European Union finance ministers approved 7 billion euros ($7.6 billion) in bridging loans to keep Greece afloat, allowing it to make a bond payment to the ECB next Monday and clear its arrears with the International Monetary Fund.

The loans will be finalized on Friday provided Germany's parliament approves a Berlin government request to open talks on a three-year bailout program - Greece's third in the past five years - worth up to 86 billion euros.

Greek Prime Minister Alexis Tsipras overcame a major mutiny in his radical left Syriza party and won parliamentary approval for a series of unpopular reforms demanded by international creditors.

As anti-austerity protesters threw firebombs at police on the streets of Athens, Tsipras was forced to rely on pro-European opposition parties to win approval for the measures that include sweeping changes to taxes, pensions and labor rules.

"I had specific choices before me: one was to accept a deal I disagree with on many points, another was a disorderly default," he said in an impassioned speech to parliament.

His Interior Minister, Nikos Voutsis, said that a snap election could be held in September or October, "depending on developments."

Greek parliamentary backing was a precondition for Athens to secure a third EU bailout worth up to 86 billion euros ($94 billion), and means tough negotiations to finalize the long-awaited deal can soon begin in earnest.

Brussels appeared to be satisfied by the results of the overnight vote.

"The authorities have legally implemented the first set of four measures agreed at the euro summit in a timely and overall satisfactory manner," EU spokeswoman Annika Breidthardt told reporters in Brussels.

European governments are divided over options to help Greece meet its short-term cash needs while it waits for the eurozone bailout deal to be finalized, which will likely take at least four weeks.

Debt 'haircut'

German Finance Minister Wolfgang Schaeuble, one of Greece's sternest critics, questioned whether Athens would ever get a third bailout, even after the parliamentary vote. He suggested its financing needs were spiraling and a debt "haircut" or write-off outside the eurozone might be a better solution.

"We will now see in the negotiations whether there is even a way to get a new program, taking into account financing needs, which have risen incredibly," Schaeuble told Deutschlandfunk radio.

The move by the Greek parliament was enough to persuade the ECB to raise Emergency Liquidity Assistance (ELA) for the banks by 900 million euros for a week to nearly 90 billion euros.

Athens has already failed to make a key debt repayment to the IMF, and it must now stump up 4.2 billion euros to the ECB itself by July 20.

Should it miss that deadline, the ECB may find it impossible to justify keeping the ELA taps open.

On Friday, German lawmakers will interrupt their summer holiday to vote on granting the government a mandate to negotiate the modalities of the new aid package.

The vote is unlikely to prove problematic, even if Chancellor Angela Merkel is facing growing disaffection within her conservative CDU/CSU parties over lending more money to the crisis-hit country.

For Germany, the question of a possible "haircut" or write-down of Greece's debt - which currently amounts to 180 percent of GDP - remains an extremely sensitive issue.

The IMF, one of Greece's creditors alongside the EU and the ECB, caused a stir with a bombshell report criticizing the deal and warning that lenders would have to go "far beyond" existing estimates for debt relief.

Debt relief could take the form of an extension of the debt maturity, or a pure and simple write-off - an option which the biggest creditor Germany, however, sees as a no-go.

Newspaper headline: Europe seeks to restore 7b euros in short term funding

Posted in: Europe

blog comments powered by Disqus