Naharnet

Eurozone Set to Release Vital Greek Aid

The eurozone is set to release a vital installment of aid money for Greece Saturday, but will leave the final decision on a second bailout for the debt-ridden country until later this summer.

The finance ministers of the 17 countries that share the euro will sign off on an €8.7 billion ($12.6 billion) tranche of Greece's existing bailout in a conference call Saturday evening. An extra €3.3 billion will come from the International Monetary Fund, whose board is expected to approve the loan next week.

Without the €12 billion, Greece would default on its massive debts within days.

The parliament in Athens set the preconditions for getting the loan installment earlier this week, when it narrowly passed new austerity measures that should allow the country to hit budget targets set in return for its original €110 billion rescue package last May.

But Greece needs tens of billions of euros in further assistance over the coming years, as its economy is shrinking amid the budget cuts and investors remain unwilling to lend it any more money. Eurozone leaders said last week that they will continue to support Greece, but the ministers are holding off on a new package until they know how much — and under what conditions — banks and other private creditors will contribute.

Talks with banks on a voluntary debt rollover, where they buy new bonds as their old ones mature, are likely to drag on for several more weeks, the European Union's Monetary Affairs Commissioner Olli Rehn said yesterday. The biggest challenge for eurozone finance ministries, which are leading the discussions, will be to set terms for a rollover that do not trigger a negtive opinion from rating agencies.

The European Central Bank has warned that a rating that sees Greece even in partial default on its debts could spark new unrest on financial markets and drag down other struggling eurozone countries.

Rehn is pushing for finance ministers to reach a political deal on the new rescue package at their next meeting on July 11, even if the details of the private sector involvement still have to be ironed out. However, several eurozone official have said that a final deal may not come until later this summer or early fall.

Most economists doubt that even a second loan package will be enough to get Greece back on track, since it won't reduce a debt load that is already approaching 160 percent of economic output. They warn that private investors will likely have to accept a cut to their holdings eventually, a move that the eurozone has so far ruled out.

Source: Associated Press


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