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EU leaders agree to bailout with strict budget cuts

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EU leaders hammered out a new bailout plan for debt-ridden Greece Thursday, on the condition that the nation passes the new austerity plan before the end of June. In protests at the cuts, Greek unions have announced a two day strike starting Tuesday.


AFP - European leaders dug out a fresh rescue for debt-ridden Greece late Thursday to avoid global financial chaos, but on condition Athens rallies parliamentary support for new austerity measures.

As negotiators for the EU and the IMF struck agreement with the Greek government on spending cuts and tax rises worth 28 billion euros and plans to bring in tens of billions from the sale of state holdings, Athens formally requested financial aid during a two-day summit in Brussels.

Greek lawmakers must pass the new austerity plan before June is out, letting eurozone finance ministers "complete work on outstanding elements to allow the necessary decisions to be taken by early July."

With the bloc under US pressure to avert financial market contagion, Greek Prime Minister George Papandreou said on leaving for the night: "We've got the support of our partners and I think this is not only a green light but also a positive sign for the future of Greece."

EU president Herman Van Rompuy said the new rescue demanded by worried international partners should allow initial "disbursement in time to meet Greece's financing needs in July."


That means a 12-billion-euro tranche of eurozone and IMF loans from last year's 110-billion euro bailout ($156 billion), which Greece needs to avert default in July and which was blocked pending the vote in the Greek parliament.

The EU leaders called on "all political parties in Greece to support the programme's main objectives," saying "national unity is a prerequisite for success."

Papandreou has a slim, five-seat majority in the Greek assembly and on Thursday Greek unions announced a general strike, starting Tuesday, timed to coincide with the vote.

Finance ministers from the 17-nation eurozone meet again on Sunday July 3 -- days ahead of a deadline for Greece to repay maturing debt or face default.

Greek authorities settled their new budgetary plans during negotiations in Athens with the European Commission, the European Central Bank and the International Monetary Fund, with Papandreou vowing "radical changes to make our economy viable."

He added: "This is a fight for the Greek people, this is a fight for Greece, for our country, but it's also a fight for a common European currency and a common Europe."

"There is a very strong determination among the member states to save what we have done since 50 years all together," French Foreign Minister Alain Juppe told the BBC of fears the eurozone might implode should Greece be allowed to default.

The commission said the deal in Athens to close the fiscal gap for the years 2011-2014 now has to be "translated into concrete legislative measures."

Greek opposition leader Antonis Samaras said beforehand he opposed "more taxes in an economy in unprecedented depression," but German Chancellor Angela Merkel urged his party "to accept its historic responsibility."

US Federal Reserve chief Ben Bernanke had warned that failure to act swiftly "would pose threats to the European financial systems, the global financial system and to European political unity."

Those remarks followed scathing comments from US Treasury Secretary Timothy Geithner and IMF fears of "large global spillovers."

Commission chief Jose Manuel Barroso said the EU had to act in the face of such criticism.

"When our partners ask: Europe, be more coherent, be stronger, take decisions quicker... that's something I take seriously," he said.

The second bailout of Athens in just over a year is set to also involve banks agreeing to lend the Greeks more money in the form of a rollover of bonds due for redemption over the summer.

In the latest sign of knock-on effects from that approach, Moody's ratings agency said on Thursday it had put the ratings of 16 Italian banks on review for possible downgrade.

However, the euro stemmed earlier losses by 2100 GMT as the latest deal took shape, reaching 1.4257 dollars against 1.4349 late on Wednesday.


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