Investors had hoped that officials meeting in Luxembourg would approve the payout of about $17 billion in rescue loans to Greece, which desperately needs the money to pay bills that come due next month.
But after several hours of talks, finance ministers from the 17 countries that use the euro said early Monday they would release the funds only if Greek lawmakers approve a controversial program of tax hikes and spending cuts to slash the country’s mammoth budget deficit.
If that happens, then the $17-billion installment from the bailout package set up for Athens last year would be disbursed in July, said Jean-Claude Juncker, the prime minister of Luxembourg.
He added that approval of the austerity measures would also pave the way for a second rescue package for Greece, which has so far failed to meet its deficit-reduction targets and is stumbling beneath a mountain of public debt. The Greek economy is on course for a painful contraction this year, heightening concerns about whether the government can pay back its loans and put the economy on a more competitive footing.
International markets have been rattled for more than a year in connection with the debt crisis in Greece and the mounting woes of Ireland and Portugal, two other euro zone countries that have had to seek emergency bailouts from the European Union and the International Monetary Fund. All eyes are now on Athens, where violent public demonstrations and a brewing revolt within Prime Minister George Papandreou’s ruling Socialist Party have thrown the fate of his proposed austerity measures into doubt.
Last week the beleaguered Greek leader was forced to reshuffle his Cabinet in an effort to shore up support for the austerity program, which would raise taxes, make deep cuts in public spending and sell off state assets to help balance the books. On Tuesday Papandreou is to present his new ministerial lineup to the parliament for a crucial vote of confidence that could determine whether his government stands or falls.
Analysts say he is likely to eke out a win, which would smooth passage of the austerity package. But the volatility of the situation makes an outcome impossible to predict with certainty.
If he fails, and if Athens cannot pay its bills next month, ratings agencies would declare Greece to be in default, a step that could set off a global financial earthquake.
