Greece given 10 days to act on broken promises

PUBLISHED : Tuesday, 09 October, 2012, 10:00am
UPDATED : Tuesday, 09 October, 2012, 10:18am

Greece must deliver on scores of broken promises by next week’s EU summit if it wants long-delayed loans, its creditors said as they eased the release of money for Portugal and launched a new “bazooka.”

“Acting means acting,” International Monetary Fund Managing Director Christine Lagarde said after talks with euro zone finance ministers due to broaden out to include European Union partners on Tuesday.

As German Chancellor Angela Merkel readied to brave Athens later the same day -- sealed off with thousands of police on high alert -- the ministerial focus switched away again from Spain despite the IMF announcing an inspection trip to monitor “financial sector reforms.”

Months of uncertainty about a bailout request from Madrid had looked until recently like dominating the summit of EU leaders in Brussels on October 18-19, but as so often over the past two-and-a-half years, the bloc has set its stall out to try and make a breakthrough on Greece.

Jean-Claude Juncker, the Luxembourg prime minister who chairs the Eurogroup, said a desperately-needed next loans payout, worth 31.5 billion euros (US$40.6 billion), could only go through if Athens “demonstrates” it can ”implement” 89 planned reforms such as privatisations “by 18 October at the latest.”

The scores of “prior actions” involve major privatisations and a whole set of reforms to labour markets or bureaucratic red-tape.

Juncker said that after being debriefed by the troika of international lenders -- the European Commission, IMF and European Central Bank -- “we were pleased to hear substantial progress has been made on Greece, specially in the last days.”

But talks between Greece and the troika must be finalised, he stressed.

Payment of the tranche has been blocked since June.

Greek Prime Minister Antonis Samaras said Friday that his country could not take more bitter medicine. If the next aid instalment did not arrive soon, by November state coffers would be empty, he said.

The Eurogroup showed they were ready to reward Portugal for reforms after Lisbon unveiled new tax hikes as part of its 2013 budget.

Ministers approved a 4.3-billion-euro tranche of EU-IMF loans, hours after hailing the entry into service of the European Stability Mechanism.

This 500-billion-euro (US$630 billion) war chest, delayed by a challenge in Germany’s Constitutional Court, was given ’AAA’ ratings by credit giants Fitch and Moody’s, although the latter took the shine off the party by giving it a ”negative” outlook.

Juncker said the fund’s entry into service marked a “historic milestone in shaping the future of monetary union.

By the end of the month it will contain 200 billion euros, with resources left in a temporary fund, the European Financial Stability Facility (EFSF), taking combined lending capacity to 700 billion.

European Commission President Jose Manuel Barroso said this was “comparable only with the IMF.”

Spain would like the ESM to be able to recapitalise its banks directly, so as to lessen the sovereign debt load, but Germany, the Netherlands and Finland have said this will not be possible until a cross-border mechanism for bank balance-sheet supervision is in order.

While euro zone partners have agreed to lend Madrid money to prop up a broken finance sector after a property bubble burst, German Finance Minister Wolfgang Schaeuble insisted that “Spain does not need a programme,” meaning a full sovereign bailout.

“That is what the Spanish government has said over and over again,” he underlined.

French counterpart Pierre Moscovici, as has become standard, took a different view, saying: “We respect the sovereignty of a big country like Spain, but we are ready to respond to any initiative that may be taken.”