Euro zone closes in on Greek deal as obstacles fall

EURO zone finance ministers inched towards approving a second bailout for debt-laden Greece yesterday that will resolve Athens’ immediate repayment needs but seems unlikely to remedy the dire state of the nation’s shattered economy.

Agreement on a 130 billion (R1.3 trillion) rescue package with draconian conditions would draw a line under months of uncertainty that has shaken the currency bloc, averting imminent bankruptcy, although work remains to make the numbers add up.

But diplomats and economists say it may only delay a deeper default by a few months. A turnaround could take a decade or more, a bleak prospect that brought thousands of Greeks onto the streets to protest against austerity measures on Sunday.

French Finance Minister Francois Baroin said all the elements were in place to reach an agreement and Greek Finance Minister Evangelos Venizelos said he expected a deal. The finance ministers began meeting mid-afternoon.

“We expect today the long period of uncertainty – which was in the interest of neither the Greek economy nor the euro zone as a whole – to end,” Venizelos said.

Dutch Finance Minister Jan Kees de Jager, the most outspoken of Greece’s northern creditors, insisted on arrival that the Netherlands could not approve the package until Greece had met all its obligations.

Finland, another stern creditor, signed a side deal with Greece yesterday for Greek banks to provide collateral in cash and highly rated assets in return for loan guarantees, removing one obstacle.

Euro zone ministers need to agree to new measures to make the financing work, given the worsening state of the Greek economy. That may also involve an indirect contribution from the European Central Bank and national central banks.

An agreement will enable Greece to launch a bond swap with private investors to help reduce and restructure Athens’ vast debts, put it on a more stable financial footing and keep it inside the 17-country euro zone.

Sceptics question whether a new Greek government will stick to the deeply unpopular programme after elections due in April, and believe Athens could again fall behind in implementation within months, prompting exasperated lenders to pull the plug once the euro zone has stronger financial firewalls in place. – Reuters