ethiopian news in amharic: Greece to face 'moment of truth'

Tuesday, June 21, 2011

Greece to face 'moment of truth'

The vote of confidence is in Mr Papandreou's new cabinet, which he put in place on Friday

The Greek government is due to face a vote of confidence, a crucial first step towards gaining a vital 12bn euro ($17bn; £10bn) loan.

If the government survives the vote, Greece's parliament will be asked to back the latest spending cuts - worth 28bn euro - on 28 June.

These austerity measures and other reforms have to be introduced before the European Union and International Monetary Fund release the funds.

Greece needs the loan to pay its debts.

Tuesday's vote of confidence is on the new Greek cabinet, which Prime Minister George Papandreou put in place last Friday.

Mr Papandreou hopes the new cabinet, and specifically the new Finance Minister, Evangelos Venizelos, will help secure parliament's backing for further austerity measures that are already proving deeply unpopular with the Greek people.

At the weekend eurozone finance ministers decided to postpone their decision on whether to grant Greece the 12bn-euro loan until the country introduces the additional spending cuts and privatisation programmes.

“Letting Greece default in a disorderly, uncontrolled way would probably be a good deal worse for the global economy than Lehman's collapse”

Peston: Greece is not Europe’s Lehman Commentators: What next for the euro?

Greece needs this aid - the latest tranche of the EU and IMF's 110bn euro aid package - by July to be able to keep up with payments to the creditors of its huge debts.

If the Greek parliament does back the austerity measures, the eurozone finance ministers will meet again on 3 July, with the funds expected to be released by the middle of next month.

However, lawmakers are having to ponder their decision in the face of mass demonstrations, strikes, and even riots.

The latest protest against the cutbacks involves workers at Greece's state-owned electricity company, who are on a 48-hour walkout.

BBC Europe editor Gavin Hewitt, who is in Athens, says ministers have argued that without further austerity measures in exchange for a new bail-out Greece is heading for bankruptcy, but many Greeks appear to prefer that option to further austerity.

Protesters participate in a rally against the government's latest austerity measures on Sunday 19 June

Mass protests against the governments austerity measures are continuing across Greece

Mr Venizelos said the decision of the eurozone finance ministers to delay the loan showed that urgent action was now needed. "We have plenty to do," he said.

Olli Rehn, the European Union's Monetary Affairs Commissioner, urged Greece to continue with its austerity measures.

"The greatest weight of responsibility lies on the shoulders of the new Greek government," he said.

Mr Rehn added that the situation in Greece was the worst crisis Europe had faced "since the Second World War".

New aid

A new aid package for Greece about the same size as the first, which was passed in May last year, was also agreed in principle by EU finance ministers on Sunday.

Greek bail-out timelineMay 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 yearsFebruary 2011: EU and IMF experts tell Greece it must make further cuts to keep recovery on trackApril 2011: EU figures reveal Greek deficit revised up to 10.5% of GDP, worse than previously thoughtMay 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 monthsQ&A: Greek debt crisis Viewpoint: Politics of Greek crisis

The new package, to be outlined by 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.

Officials said this money had to be freely given, or it would be seen as technical default on Greece's debt repayments.

If Greece were to default - or seen to be in default - it would mean massive losses for European banks that hold Greek debt, including the European Central Bank.

Officials said the new plan was expected to fund Greece into late 2014 and total about 120bn euros.

Inspectors for the EU and IMF will make another visit to Athens on Tuesday in what the European Commission said would be a "technical mission".

The visit, which comes after teams from both bodies have spent months poring through the country's accounts, is unscheduled and the Commission did not say what its objective would be.