Greece decisions to be made in July
IMF warns Europe’s debt crisis has potential to crush region’s outlook unless efforts are picked up
As the International Monetary Fund called for faster action on the eurozone’s debt crisis, European Union finance ministers agreed during a meeting yesterday that they would decide in early July the main outlines of a second bailout for Greece, including private sector contributions.
“We have agreed today that the contribution [of the private sector] must be voluntary, but... Greece also has to deliver,” said the head of the Eurogroup, Jean-Claude Juncker.
“If you aim for a voluntary private contribution, you can’t fix what size it must be beforehand. That also has to be discussed with private creditors.”
Juncker also emphasized that Greece had to keep its side of the agreement by passing further austerity measures.
New emergency talks for a second bailout for Greece were set for July 3.
In a call to pick up the pace of decisions being made on Greece, the IMF warned yesterday that Eu- rope’s debt crisis has the potential to crush the otherwise positive economic outlook for the region unless policymakers step up efforts to resolve it.
“A broadly sound recovery continues, but the sovereign crisis in the periphery threatens to overwhelm this favorable outlook, and much remains to be done to secure a dynamic and resilient monetary union,” the Washington-based fund said in a statement.
“Failure to undertake decisive action could rapidly spread the ten- sions to the core of the euro area and result in large global spillovers.”
The IMF said policymakers should scale up Europe’s rescue fund and extend its potential uses “to secondary market purposes and term funding guarantees.”
That echoes proposals by the European Central Bank, which wants the rescue fund to purchase government bonds on the secondary market.
Meanwhile, euro-area governments stripped their permanent debt crisis mechanism of preferred- creditor status for any loans to Greece, Ireland and Portugal to help the countries return to bond markets. They also expanded their current 440-billion-euro fund.
The decision by finance ministers marks a policy reversal from a March agreement to give the European Stability Mechanism preferred status covering aid for all euro-area countries.
Such seniority would have given the ESM, due to be established in mid-2013, priority over private investors in any payout after a default.