Eurozone finance ministers have postponed their decision on a 12bn euro ($17bn; £10bn) loan to Greece until it introduces further austerity measures.
The ministers said they expected to pay the latest tranche of a 110bn euro EU and IMF aid package by mid-July.
But it will depend on the Greek parliament passing 28bn euros of new spending cuts and economic reforms.
The ministers also committed to put together a second bail-out package to keep the country afloat.
Stock markets and the euro fell, unsettled by the lack of resolution to the Greek crisis.
Leading indexes in Frankfurt, Paris and London were all down around 1% and the euro lost 0.5% against the US dollar.
Jean-Claude Juncker, Luxembourg’s prime minister who chairs the meetings of the 17 eurozone finance ministers, said that as long as the Greek parliament supported the new measures, he was certain Greece would get a second bail-out.
Letting Greece default in a disorderly, uncontrolled way would probably be a good deal worse for the global economy than Lehman’s collapse”
The Greek government expects a second rescue package to be similar in size to the first one.
Athens has said it needs the 12bn euros from the existing package by July to avoid defaulting on its debt.
Belgian Finance Minister Didier Reynders said the release of that would depend on the Greek Prime Minister, George Papandreou, surviving a confidence vote on Tuesday.
“To move to the payment of the next tranche, we need to be sure that the Greek parliament will approve the confidence vote and support the programme, so the decision will be taken at the start of the month of July,” he said.
Earlier, thousands of people gathered outside the parliament building in Athens to oppose any further cuts.
Waving banners and Greek flags, they shouted: “Thieves! Traitors!”
Inside, Mr Papandreou urged MPs to accept his programme of tax increases, spending cuts and privatisation, which is expected to raise 50bn euros by 2015.
“The consequences of a violent bankruptcy or exit from the euro would be immediately catastrophic for households, the banks and the country’s credibility,” he said at the start of a three-day debate.
Appeal for unity
After a seven-hour meeting in Luxembourg that ended early on Monday, the finance ministers said they would not approve the disbursement to Greece of the 12bn euros (8.7bn euros from eurozone governments and 3.3bn euros from the IMF) until the country’s parliament passed the fiscal strategy and privatisation laws.
Greek bail-out timeline
- May 2010: EU and IMF agree bail-out package to prevent Greece defaulting on its debts; in return, Greece agrees to make 30bn euros of budget cuts over the next three years
- February 2011: EU and IMF experts tell Greece it must make further cuts to keep recovery on track
- April 2011: EU figures reveal Greek deficit revised up to 10.5% of GDP, worse than previously thought
- May 2011: Greece begins privatisation programme but is warned the IMF may not release more funds as Athens cannot guarantee it will remain solvent for next 12 months
A statement issued by the ministers called on all political parties in Greece to: “support the programme’s main objectives and key policy measures to ensure a rigorous and expeditious implementation”.
“Given the length, magnitude and nature of required reforms in Greece, national unity is a prerequisite for success,” it added.
The ministers also concluded that because Greece was unlikely to return to the commercial money markets by early 2012, a second bail-out would be needed.
The new aid package, to be outlined by early July, will include loans from other eurozone countries.
It is also expected to feature a voluntary contribution from private investors, who will be invited to buy up new Greek bonds as old ones mature.
“Ministers agreed that the required additional funding will be financed through both official and private sources and welcome the pursuit of voluntary private sector involvement in the form of informal and voluntary roll-overs of existing Greek debt at maturity for a substantial reduction of the required year-by-year funding within the programme, while avoiding a selective default for Greece,” the statement said.
Officials said the plan was expected to fund Greece into late 2014 and total about 120bn euros.
The agreement came after the eurozone ministers held a conference call with other members of the G7 group of rich industrialised nations.
Source BBC News