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Greek vote paves way for approval of loan

Greek parliament votes for austerity measures; EU finance ministers to release €12bn in aid.

Eurozone finance ministers are readying themselves to approve a €12 billion loan to Greece when they meet in Brussels on Sunday (3 July), following the Greek national parliament’s approval of austerity measures yesterday (29 June).

The €12bn will be the latest tranche out of €110bn of assistance from the eurozone and International Monetary Fund (IMF) that was agreed back in May 2010 in an attempt to stabilise Greece’s public finances and the eurozone.

Ministers will also discuss a second bail-out, which it is estimated could be worth €120bn. However, both decisions depend on Greek MPs passing a law to implement the austerity package in a second vote today (30 June).

The EU and IMF had made approval by Greece’s parliament of €28bn of tax increases and spending cuts a condition of releasing any further loans. Greece would be heading for default as early as 15 July without the extra funding.

Greece’s parliament approved the austerity plan yesterday by 155 votes to 138, with five abstentions. Only one member of the ruling socialist Pasok party voted against the bill. Meanwhile, outside the parliament, there were fights between protesters and police.

Eurozone leaders breathed a collective sigh of relief at the result of the vote. Jean-Claude Juncker, the prime minister of Luxembourg who chairs meetings of eurozone finance ministers, said that he was “happy and relieved”. He said: “The way is clear as of this moment for the disbursement of the fifth tranche of bilateral loans.”

Angela Merkel, Germany’s chancellor, described the development as crucial “for the stability of the euro”.

In a joint statement yesterday, José Manuel Barroso, the president of the European Commission, and Herman Van Rompuy, the president of the European Council, said that Greece had taken “an important step forward along the path of fiscal consolidation and growth-enhancing structural reform”.

They said that a second positive vote today would allow eurozone finance ministers to approve the next tranche of financial assistance as well as allowing them to “proceed rapidly on a second package of financial assistance, enabling the country to move forward and restoring hope to the Greek people”.

‘No plan B’

Olli Rehn, the European commissioner for economic and monetary affairs, had warned on Tuesday (28 June) that there was “no plan B to avoid default”.

After the €12bn tranche is approved, finance ministers will turn their attention to the details of a second rescue package, which recognises that the government will not be able to return to the markets next year, as had initially been hoped.

Finance ministers of the 17 eurozone countries agreed when they last met, in Luxembourg on 20 June, that the new loan would be financed by both public and private sources, a decision endorsed by leaders of eurozone member states at the European Council in Brussels on 24 June.

Officials from the eurozone’s banking and insurance industries are to discuss ways to support the new bail-out informally, in such a way that it would not be classified by the credit-rating agencies as a default. They held a preliminary meeting in Rome on Monday (20 June).

One option is a proposal made by French banks, confirmed by Nicolas Sarkozy, France’s president, that would see banks rolling over half the proceeds that they would receive from maturing Greek debt into new 30-year bonds. An additional 20% of the money due would be re-invested in new bonds issued by the European Financial Stability Facility.