Eurozone backs Greek aid, mulls new bailout

The eurozone approved its share of a euro 12 billion ($17.4 billion) aid payment for Greece and pledged to complete work in the coming weeks on a second rescue package for the cash-strapped nation to prevent a default.

Finance ministers agreed to disburse euro 8.7 billion of loans under last year’s euro 110-billion bailout by July 15, rewarding Greek Premier George Papandreou for pushing an extra austerity plan through parliament. The International Monetary Fund is due to provide the rest of the July aid instalment, the fifth under the 2010 package.

The spotlight now turns to a second bailout to which banks and insurers plan to contribute, following German demands for taxpayer relief. Euro zone governments and investors will provide 70 per cent of new aid that may total euro 85 billion, with the IMF offering the rest, Thomas Wieser, an Austrian finance ministry official, had said on June 30.

“The Greek authorities provided a strong commitment to adhere to the agreed fiscal adjustment path,” the 17 eurozone finance chiefs said in a statement yesterday after a conference call joined by the International Monetary Fund’s acting chief, John Lipsky, and European Central Bank president Jean-Claude Trichet.

“The precise modalities and scale of private sector involvement and additional funding from official sources will be determined in the coming weeks.”

Papandreou's victory
Bonds of Europe’s most indebted nations rebounded this past week after Papandreou’s victory in parliament eased concerns about an imminent Greek default. Stocks and the euro rose. Greece’s bonds advanced for a second week and Italian 10-year securities gained for the first week in three, while the Spanish 10-year yield declined the most in five months. The two-year Greek yield dropped more than 150 basis points.

The euro rose 2.4 per cent against the dollar, its first weekly gain in four weeks, and the Stoxx Europe 600 Index snapped a string of eight straight weeks of losses. The MSCI World Index posted its biggest weekly advance in almost two years. Europe is trying to draw a line under a debt crisis Greece sparked more than a year ago and that threatens the 12-year-old monetary union. Ireland and Portugal sought emergency aid worth euro 146 billion after the initial bailout of Greece in May 2010. Investors remain concerned about the vulnerability of some bigger euro nations, including Spain.

Greek lawmakers
The political mood in Europe has complicated the task, with a German-led group of richer nations reluctant to offer more aid and opposition to austerity mounting in Greece. Papandreou shuffled his cabinet last month to fend off a rebellion by his Socialist party and faced demonstrations and strikes this past week as Greek lawmakers approved a euro 78 billion package of tax increases and asset sales.