Bailout loans depend on austerity budget approval

Eurozone finance ministers say they will unblock existing bailout loans for Greece after the parliament approves new budget cuts and a raft of asset sales. 

Reuters/François Lenoir

The controversial budget plan includes 28.4 billion euros of fiscal belt-tightening along with a vow to make 50 billion euros from privatisations by 2015. If approved, the money would then be released mid-July.

Speaking after seven hours of talks, Eurogroup chairman Jean-Claude Juncker said it was obvious there could not be commitments to hand over more money before parliament gives its backing to the austerity measures.

“We stressed forcefully that the Greek government, by the end of this month, must act so as to convince us that all the commitments entered into by the Greek authorities are met,” he said.

The finance ministers also agreed a roadmap for a second 100 billion euro bailout which would involve taxpayer’s money, but also a substantial contribution from private banks, pension funds and insurers.

Reaction from Asian markets to the decision by the finance ministers was not encouraging. The euro fell against the dollar in a trend that dealers say reflects the continuing uncertainty surrounding the bailout.

Greece needs the money urgently to avoid defaulting on its current expenditure bill, but it also needs a second rescue package to avoid defaulting on its debt.

Markets fear a default on Greek debt could trigger a cascade of problems in Europe’s bigger economies including Spain and Ireland. Such a domino effect could plunge the global financial system into a crisis similar to the one seen in 2008.