PREVIEW: Greek debt drama casts shadow on EU summit - again

By Alvise Armellini Jun 22, 2011, 16:37 GMT

Brussels - European Union President and EU summit host Herman Van Rompuy had said it as early as December: the leaders' meeting in June should focus primarily on migration.

Later events - the Arab Spring and the migratory crisis stemming from it - seemed to give the idea added mileage. But a resurgence of the eurozone's debt crisis, which has been haunting the EU for over a year, has upended Van Rompuy's careful planning.

'Van Rompuy wants to stick to the agenda, but we have this Damocles' sword of Greece,' one senior EU diplomat said, using the Greek legend to refer to the renewed risk of Athens' default, despite its 110-billion-euro (158-billion-dollar) bailout from last year.

EU leaders are to meet at a critical juncture, after a Greek parliament vote of confidence in Prime Minister George Papandreou's reshuffled government, but before another key vote on Tuesday on austerity measures that international lenders have forced on Greece.

The EU and the International Monetary Fund have said that unless 28 billion euros' worth of cuts and a 50-billion-euro privatisation plan are approved, Greece will not get the 12 billion euros it needs by mid-July to avoid default.

Approval of a second bailout package worth up to 120 billion euros, needed to keep Greece solvent beyond 2012, is also dependent on the June 28 parliamentary vote.

To help Greece swallow the pill, European Commission President Jose Manuel Barroso said Tuesday he would ask leaders to let Greece have faster access to EU regional funds that have already been earmarked for it - a sweetener worth about 1 billion euros.

But diplomats said Wednesday the proposal remained hazy. 'These are taxpayers' funds, there have to be proper checks on how they are spent,' one of them noted.

The EU summit is to kick off Thursday evening with a dinner devoted to economics issues dominated by Greece. European Central Bank (ECB) President Jean Claude Trichet, who has resisted German-led calls to make private lenders share the cost of that country's new rescue plan, is also due to attend.

Upcoming stress tests on European banks are also sensitive - with planning afoot to recapitalize banks that fail to make the grade, possibly even those exposed to losses on Greek debt.

A statement is foreseen on the EU's conditional support to Greece, but diplomats insist that leaders are unlikely to want to enter into the details of the crisis - although such predictions have been proven wrong in the past.

Another worry is the European Parliament's refusal to back proposed reforms of EU budget rules, on the grounds that they do not go far enough. The assembly is set to vote on the issue on Thursday, but indicated that it is ready to return to the matter in July.

The delay has raised concerns in Germany, where Chancellor Angela Merkel is anxious to provide her bailout-weary parliament with evidence that EU action is being taken to prevent future Greek-like crises.

Migration and asylum issues have been relegated to Friday. EU leaders are expected to give a very cautious endorsement to a Franco-Italian call to allow border controls to be reintroduced within the passport-free Schengen area in cases of sudden migratory inflows.

Controls should be reintroduced only 'as a last resort ... in a truly critical situation ... for a strictly limited scope and period of time,' said draft summit conclusions, dating from Monday.

The issue is still controversial, with several member states, including Spain and Slovakia, wary of attempts to make it easier to suspend Schengen rules, albeit temporarily.

EU Home Affairs Commissioner Cecilia Malmstrom warned EU leaders against focusing only on security matters, drawing attention to their failure to welcome refugees from war-torn Libya.

'EU member states altogether have so far committed to give protection to some 800 people, while Norway alone has agreed to take in more than 300 such refugees,' she said Wednesday.

The summit is set to conclude at Friday lunch-time with discussions on Syria. EU leaders are expected to endorse this week's decision to extend sanctions - and on Libya and the Middle East, where the Palestinians' plan to ask for UN recognition is threatening to split the EU.

Leaders are also set to sign off on the appointment of Trichet's successor at the ECB - Italian central banker Mario Draghi - and green-light the ending of accession talks with Croatia in a ceremony with Prime Minister Jadranka Kosor.