Time running out for Greek bailout as eurozone plays tough

Feb 15, 2012, 13:52 GMT

Athens/Brussels - Greek politicians were on Wednesday struggling to meet bailout conditions, while Germany denied reports that it and other euro area partners had run out of patience and were willing to let the country go bankrupt.

Decisions on a 130-billion-euro (171-billion-dollar) aid package were postponed because Greece still needs to explain how it would fill a 325-million-euro budget gap, and provide written assurances that bailout terms would be respected following elections in April.

Socialist PASOK leader George Papandreou signed such a letter Tuesday, Greek newspapers reported. Conservative party leader Antonis Samaras, who is tipped to become the next prime minister, committed to the bailout terms, indicating he would stick to deficit reduction targets.

But he warned that 'policy modifications might be required to guarantee the full programme's implementation.'

Greece has so far fulfilled only one of three conditions set by the Eurogroup of eurozone finance ministers last week: Approval by parliament on Sunday of a 3-billion-euro austerity and economic reform package.

A Eurogroup meeting in Brussels on Wednesday was called off, but was replaced by a teleconference that started at about 1600 GMT.

Amadeu Altafaj, the spokesman for EU Economy Commissioner Olli Rehn, would not be drawn on speculation that ministers could at least launch preparations for a parallel 100-billion-euro debt write-off deal, which is also part of the aid package.

Greece needs the money from the EU and International Monetary Fund (IMF) by March 20, when it will have to meet a 14.5-billion-euro bond repayment.

Until now, there were expectations that the package needed to be approved this week to allow for the legal procedures linked to the bond-swap deal to be concluded in time, and for countries such as Germany to secure parliamentary approval for the aid.

'We are running out of time,' Altafaj said.

Rainer Bruederle from the German Free Democrats, Chancellor Angela Merkel's junior coalition partner, suggested that Greek payments could be made in installments, depending on Athens' progress in reducing its deficit.

Merkel's spokesman Steffen Seibert denied a Financial Times report indicating that Germany, the Netherlands and Finland - three eurozone countries that have retained a top-notch AAA credit rating - had lost faith in Greece and were considering letting it default.

'I can clearly say on behalf of the federal government that these rumours are false. There has been no such decision by Germany,' he said.

But in an expression of German concerns, Commerzbank chief economist Joerg Kraemer told Deutschlandradio Kultur: 'The question is of course whether the debt will be reduced enough with regard to the enormous problems Greece has. I have my doubts about that.'

Italian Prime Minister Mario Monti said Greece was 'probably' being treated with 'excessive' harshness, but this was payback for 'Greek policies (which) for many years ... have been a perfect catalogue of worst practices.'

These included 'corruption, nepotism, lack of competition, irregular public tenders, tax evasion,' as well as the falsification of national statistics to hide debt from the EU, said Monti during a visit to the European Parliament in Strasbourg, France.

Letting go of Greece carries the risk of a contagion effect to other vulnerable eurozone economies, some analysts warn. But this week Spain, Italy and Portugal successfully completed bond auctions, despite markets being aware of the threat for Greece.

The European Commission cautioned against a Greek default, saying it would be 'devastating.'

'The consequences would be devastating for the Greek citizens and particularly for the most vulnerable, and ... would be felt throughout the eurozone and beyond,' Rehn's spokesman said.

Meanwhile, Greek President Karolos Papoulias was giving up his salary, Finance Minister Evangelos Venizelos announced Wednesday.