Eurozone finance ministers have begun talks in Brussels aimed at securing a second bailout for debt-laden Greece that will resolve Greece’s immediate repayment needs but seems unlikely to remedy the dire state of the nation’s shattered economy.
Evangelos Venizelos, the Greek finance minister, said he expected a deal to be reached, while his French counterpart, Francois Baroin, said all the elements were in place to reach an agreement on the 130bn euro ($170bn) rescue package.
The finance ministers began meeting in the Belgian capital at 15:30 GMT on Monday.
“We expect today the long period of uncertainty – which was in the interest of neither the Greek economy nor the euro zone as a whole – to end,” Venizelos said in a statement.
Agreement on a deal on tough conditions would draw a line under months of uncertainty that has shaken the currency bloc, averting imminent bankrupcty, although work remained to make the numbers add up.
Analysts say it may only delay a deeper default by a few months. Greece has been in recession for the last five years and it is unlikely to do well in the next one decade with huge spending cuts.
Pressure on Greece
Jan Kees de Jager, the Dutch finance minister who is the most outspoken of Greece’s northern creditors, insisted in Brussels on Monday that the Netherlands could not approve the rescue package until Greece had met all its obligations.
Finland, another stern creditor, signed a side deal with Greece for Greek banks to provide collateral in cash and highly rated assets in return for Finnish loan guarantees, removing one long-running obstacle.
Eurozone ministers need to agree new measures to make the financing work, given the state of the Greek economy. That may also involve an indirect contribution from the European Central Bank (ECB) and eurozone national central banks.
An agreement will enable Greece to launch a bond swap with private investors to help reduce and restructure Athens’ vast debts, put it on a more stable financial level and keep it inside the 17-country eurozone.
Amid the developments, riot police shielded the national assembly, braced against a repeat of riots a week ago that saw buildings torched and looted across the business district of Athens after a much larger rally involving tens of thousands.
There have been demonstrations in many cities across Europe in solidarity with Greek people who have been hit hard in the wake of massive austerity cuts.
The Greek parliament last week passed austerity measures worth 3.3bn euros ($4.3bn) that included cuts in pension, salaries and tax increases.
There is still scepticism in Germany and other countries that Greece will be able to live up to its commitments, but officials said momentum was building for approval of the deal.
Germany and The Netherlands still need to have the second bailout passed in their respective parliaments.
“At the moment it appears it will go exactly this way,” Maria Fekter, Austrian finance minister, said.
The overall objective is to reduce Greece’s debts from 160 per cent of GDP to around 120 per cent by 2020 – the figure and time frame that the IMF, ECB and the European Commission, together known as the troika, have established as sustainable.
The IMF has said if the ratio cannot be cut to around 120 per cent, it may not be able to help finance the Greek programme.
The troika, which is responsible for monitoring Greece’s reform progress, carries out quarterly reviews, while the European Commission will soon have dozens more monitors on the ground in Athens as part of the second package.
Talks on interest rate
As per the deal, Greece will also have around 100bn euros of debt, with private lenders – banks and insurers – taking a 70 per cent reduction in the value of their Greek assets.
There are also discussions about marginally lowering the interest rate on 110bn euros of bilateral loans already made to Greece in May 2010 – the first package of support – to lighten the financing burden on Athens.
If the finance ministers do succeed in reaching an agreement on Monday, it will provide immediate relief to Athens and financial markets.
But no one is pretending it will end Greece’s problems. Figures last week showed its economy shrank seven per cent year-on-year in the last quarter of 2011, with further cuts likely to make matters worse.
Al Jazeera’s John Psaropoulos, reporting from Athens, said: “Well, the mood is definitely growing gloomier in Athens since the coalition government was formed last November.”
“Back then, you had a vast majority of Greeks, three quarters of voters, were in favour of staying within the eurozone, of extending the life of coalition government as long as possible to delay the elections and all the disruptions that they might bring,” he said.
“Now those numbers have changed. Eurozone membership support has fallen to about 60 per cent and belief in bailout system as fallen to such an extent that now fully 48 per cent Greeks, according to a poll last week, would rather have bankruptcy than the austerity measures.
“Lowering of faith the in this government. Now 60 per cent of Greeks say they are in favour of elections.”
Italy, with national debts nearly four times greater than Greece’s at 1.3tn euros, and Spain, where hundreds of thousands of anti-austerity protesters took to the streets on Sunday, risk renewed financial-market contagion if the deal breaks down.