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Greece waits on eurozone ministers to approve crucial €130bn bailout

Hardline demands from northern European governments dampen hopes second rescue package will be signed off

The Greek people and their government were on Monday being made to sweat at the hands of European finance ministers for a €130bn (£110bn) bailout to save the country from bankruptcy and the eurozone from collapse.

Hardline demands from northern European governments dampened initial optimism that the eurogroup of 17 finance ministers would sign off on a second rescue package for the stricken Greek economy in less than two years.

Jean-Claude Juncker, the prime minister of Luxembourg, who was chairing the meeting in Brussels, had said on arriving: “I am of the opinion that today we have to deliver, because we don’t have any more time”.

The brinkmanship came amid conflicting assessments of the likely impact of a Greek debt default, with some arguing it would provoke runs on banks and a pan-European depression and others insisting it would swiftly be contained and ultimately encourage new Greek competitiveness.

Greece must repay €14.4bn of its debt by 20 March, but some European diplomats said the bailout might not be finalised until just days before that deadline – if at all.

The Dutch and Germans refused to endorse the package even though Evangelos Venizelos, the Greek finance minister, who arrived with his prime minister, Lucas Papademos, insisted Athens had now met all the conditions for the bailout.

“For Greeks, this is a matter of national dignity and a national strategic choice and no other integrated and responsible choice can be opposed to it,” he declared.

Jan Kees de Jager, his Dutch counterpart, raised the stakes before what promised to be a long and stormy meeting, by resetting tough conditions for approving the bailout, including the permanent stationing of non-Greek fiscal watchdogs in Athens.

“Greece wants the money and so far we haven’t given them anything. We have said no over the past weeks. We can afford to say to no until Greece has met all the demands. It’s up to Greece and the troika [European Central Bank, IMF and European Commission] to say whether this has been done and for us it is a no until Greece has done so. If Greece lives up to all its obligations, then the Netherlands will also do its part,” he said.

Dutch sources said the conservative-led minority government in the Hague would refuse to sign up for any deal that did not commit the Greek government to deliver a debt-to-GDP ratio of 120% by 2020 and allowed a drift to, say, 125% or 129% – the level assumed by the troika’s latest analysis of Greece’s depressed economy, which contracted 7% last year.

“Debt sustainability is a key issue for us too,” said a German source, pointing out that the IMF would also refuse to back a deal that did not ensure such sustainability. Christine Lagarde, the IMF managing director, simply noted that Greece had made “significant efforts”.

The IMF has already indicated that, whereas it contributed around a third of the first €109bn Greek rescue package, it would pay only 10-15% this time – forcing eurozone governments to pay in more.

Dutch officials made plain there could be no question of increasing the rescue package to €138bn, as suggested in some quarters because the Greek economy is contracting faster than expected.

“We’ve seen that Greece time and time again fails to satisfy the conditions that the international community makes … In the Netherlands, it really is an issue that you have to lend money to a country that for the umpteenth time hasn’t held itself to its agreements,” De Jager said.

The German finance minister, Wolfgang Schäuble, said on arrival that he was confident a deal would be struck, but Berlin officials made plain there was an array of issues to be settled first – not least ensuring that Athens lived up to its promises, cut spending, reformed its archaic labour laws and repaid its debts.

“We’re not talking about imposing commissars on each Greek ministry as it’s sometimes alleged in Athens, but ensuring that these fiscal commitments are met. That needs constant surveillance, but the mechanism for doing so is yet to be agreed,” one said.

The German government is suggesting that the specially-designated (escrow) account set up to ensure that bailout monies are used to service debt and not for general public spending should be controlled by, say, senior IMF and Greek National [central] Bank officials.

The conflict continued ahead of a likely decision by all 27 EU finance ministers, including the British chancellor, George Osborne, on Tuesday to approve new powers for Brussels to monitor fiscal policy within eurozone countries – and demand budget changes, in an unprecedented erosion of national sovereignty.

There were some reports that Athens and Brussels had agreed that both the ECB and national central banks would take part in the debt relief programme by putting some of their profits on Greek debt into the bailout fund.

But a deal with private bondholders, a core element of the overall agreement, was also at risk because the banks and other institutions could be forced to accept an even deeper “haircut” than the 70% discussed with Athens. Greek sources indicated this was part of the tense negotiations and might unravel.

Any deal agreed also needs to be ratified by the parliaments of Germany, the Netherlands and Finland. The Bundestag is to debate the package on 27 February, though this may slip because of delays in completing its final details, and is certain to approve it despite loud complaints about Greek “fecklessness”.

“There’s been a complete breakdown of trust between Germans and Greeks,” one European diplomat said. “The atmosphere has got extremely nasty, with all this talk of sending in the controllers.”

Earlier, David Cameron tried to shift the focus of next week’s EU summit to jobs and growth by releasing an eight-point letter signed by himself and 11 other government heads – including Italy’s Mario Monti and Spain’s Mariano Rajoy. It was the first time the Italian and Spanish premiers had backed such a UK-led initiative.

But conspicuously absent from the declaration, which urged a boost to growth via liberalisation of services, were the names of Angela Merkel, the German chancellor, and Nicolas Sarkozy, the French president, who traditionally launch their own “call to arms” before each EU summit. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds