Greece debt plan ‘playing with fire’ says eurozone head

Greece’s austerity campaign has led to angry protests on the streets of Athens

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Greece crisis

The Greek debt crisis is endangering the economies of at least five other EU countries, the head of the eurozone group of finance ministers has warned.

Luxembourg Prime Minister Jean-Claude Juncker said Germany was “playing with fire” with a plan to involve private creditors in resolving the crisis.

Eurozone finance ministers are set to release a 12bn-euro (£10bn) in loans later on Sunday.

PM George Papandreou has asked parliament to support the new cabinet.

Speaking on Sunday at the start of three days of debates, Mr Papandreou said Greece was given the impression it was divided over the financial reforms, which was not helping its economic situation.

The 12bn-euro loan is the latest tranche of an EU and IMF aid package, agreed in May last year, worth a total of 110bn euros.

Mr Papandreou said that Greece was in talks for a new bail-out “roughly equal” to the first package, and also called for a referendum in the autumn on “changes to the political system”, including to the country’s constitution.

MPs will vote on a confidence motion on Tuesday after Friday’s cabinet reshuffle saw former Defence Minister Evangelos Venizelos replacing George Papaconstantinou in the finance ministry.

The move sparked a jump in Greek bank shares but failed to ease the anger on the streets.

Greeks are fed up with austerity, recession and debt.

Many analysts are sceptical that Greece can dig its way out of this hole, even with substantial help from its partners.

The government still believes it can, but it needs to convince public opinion that it is worth the effort.

If it fails, a Greek default could send the rest of the eurozone, and the wider financial world, into dangerous territory.

Greece needs the 12bn-euro IMF and EU loan to avoid defaulting on its debts due for repayment over the next few months.

But the money is conditional on the government implementing a series of painful domestic reforms which have sparked nationwide strikes, rallies and violent riots on the streets of the capital.

German Chancellor Angela Merkel has said that private investors should be encouraged to share some of the burden of the Greek debt by allowing the country extra time to pay them off.

‘Wrong signal’

Mrs Merkel and French President Nicolas Sarkozy have stressed such involvement should be voluntary, but that private creditors should “show solidarity”.

But Mr Juncker told German paper the Suddeutsche Zeitung on Saturday that this proposal was “playing with fire” as it would send the wrong signal to ratings agencies who could then decide Greece had defaulted on its repayments.

If Greece were to default, the cost of borrowing would rise for other struggling eurozone countries, forcing them to default in turn.

Mr Juncker said that unless properly managed, the crisis “could prove contagious for Portugal and Ireland, and then also for Belgium and Italy because of their high debt burden, even before Spain”.

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%, 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
  • 29 June 2011: Deadline for Greece to agree new austerity package

He said Mrs Merkel’s proposal was based on “domestic political considerations in Germany”.

Separately on Sunday, the president of the European Central Bank criticised eurozone policy makers for poor governance.

“Governance of the economic union is insufficient,” Jean-Claude Trichet told an audience in the German city of Kiel.

Finance ministers from eurozone countries are due to meet in Luxembourg later on Sunday, where they will almost certainly release the next 12bn-euro loan which has already been promised to Greece as well as discussing a second bail-out package.

But the BBC Chris Morris in Athens says many people doubt whether that will be enough to save the country’s economy.

Thousands of protesters marched on the Greek parliament on Saturday to show their continued anger at Prime Minister George Papandreou’s austerity campaign which would see significant cuts to public services and sell off state enterprises.

“They, along with the creditors, have decided to skin the Greek people alive,” said Aleka Papariga, head of the Greek Community paryt.

“The struggle will continue until the end.”

Source: BBC News

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