Bloomberg News

Greek Aid Payment Approved by Euro-Area Finance Ministers

December 01, 2011

(For more on Europe’s debt crisis, see EXT4.)

Nov. 30 (Bloomberg) -- Euro-area finance ministers approved a 5.8 billion-euro ($7.7 billion) loan to Greece under last year’s bailout after eliciting budget-austerity pledges from Greek political leaders backing a unity government.

The go-ahead for the sixth disbursement of funds under the fully taxpayer-funded package of 110 billion euros shifts the spotlight to a second rescue of Greece that foresees 50 percent losses for private investors in Greek bonds. The new aid plan, crafted at an October summit, also includes 130 billion euros in extra public funds.

After initially endorsing the next loan for Greece on Oct. 21, the euro area froze the payment this month because former Socialist Premier George Papandreou announced a referendum on the second rescue plan. He later called off the vote, resigned and was succeeded by ex-central banker Lucas Papademos, whose interim government has the support of three parties to press ahead with budget cuts needed for continued aid.

“We decided to release the sixth disbursement of the Greek program now that prior actions have been met,” Luxembourg’s Jean-Claude Juncker told reporters yesterday in Brussels after chairing a meeting of the 17 euro-area finance ministers, who also discussed growing threats to Spain and Italy from the debt crisis triggered by Greece two years ago.

Economic Contraction

Greece, which faces a fifth year of economic contraction in 2012, says it needs the next international aid payment by mid- December. The euro area’s installment is part of an 8 billion- euro disbursement, of which the International Monetary Fund will provide the remainder.

The IMF, which is funding almost a third of last year’s package for Greece, must still approve its 2.2 billion-euro share of the next payment to the country. Greek Finance Minister Evangelos Venizelos said in a statement handed out in Brussels that the IMF planned to give its verdict on Dec. 5 and Juncker said the funds would be transferred to Greece by the middle of December.

Since Papademos became prime minister on Nov. 11, the euro area and IMF have sought assurances from the leaders of the parties backing the government that they were committed to reining in Greece’s budget deficit. The gap was 10.6 percent of gross domestic product in 2010 and is projected to be 9 percent this year.

Written Pledge

The focus has been on Antonis Samaras, leader of the New Democracy party, the second-biggest faction in the Greek parliament, because he hesitated to meet the demands for a written pledge to support the austerity program. On Nov. 21, European Commission President Jose Barroso told Samaras to quit playing “political games” and heed the requests.

Two days later, Samaras sent a letter to the commission, the group of euro-area finance ministers, the European Central Bank and the IMF. The IMF followed with a statement that welcomed New Democracy’s backing for the “key objectives and policies” of Greece’s budget program.

“In Greece, we have all the necessary conditions in order to go ahead with the next disbursement,” Venizelos said in an e-mailed statement yesterday. “We have the necessary political consensus, we have the necessary national unity and also the national commitment and determination to go ahead.”

Papademos, a former ECB vice president, has vowed to enact the planned writedown of Greek debt with private investors. That bond exchange is supposed to be voluntary, take place in early 2012 and help put Greece’s debt on a path to fall to 120 percent of GDP in 2020 from 145 percent last year.

‘Complex Process’

“It’s a complex process, but we are committed to complete it successfully together with the private sector and our European partners,” Papademos said on Nov. 21. Venizelos said yesterday that the goal is to complete the procedures in January.

The initial bailout of Greece was made up of loans from euro-area governments and the IMF. The euro area’s share of the new package is set to come from the 440 billion-euro European Financial Stability Facility, which is already contributing to international rescues of Ireland and Portugal.

--Editors: Patrick G. Henry, Jones Hayden

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net


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