Last Updated: Wed May 09, 2012 18:08 pm (KSA) 15:08 pm (GMT)

Greece gets more cash amid rescue deal doubts

Uncertainty has sent markets and the euro tumbling, as fears resurfaced of Greece quitting the eurozone before the year is out. (File photo)
Uncertainty has sent markets and the euro tumbling, as fears resurfaced of Greece quitting the eurozone before the year is out. (File photo)

Greece is to get a further 5.2 billion euros as part of its bailout package but creditors warned Wednesday there may be no more if it fails to come up with a government that sticks to their conditions.

The warnings came after the leader of the radical left-wing party charged with forming a government told international lenders that any cabinet he heads would renege on the terms of the 240-billion-euro ($311 billion) bailout.

The uncertainty sent markets and the euro tumbling, as fears resurfaced of Greece quitting the eurozone before the year is out after elections that saw voters roundly reject more crippling austerity measures.

Even the leaders of the outgoing Pasok-New Democracy coalition that signed off on the agreement with the International Monetary Fund and European Union on March 9 are beginning to suggest that the deal would have to be reopened.

The next payout due Thursday “will take place because it has already been approved,” Amadeu Altafaj, spokesman for EU economy commissioner Olli Rehn, told AFP by telephone on Wednesday.

But Luxembourg Foreign Minister Jean Asselborn warned that future loans would not be forthcoming unless Greece installed a stable government.

“We have to say to the Greek people right now that the situation is serious, that no European Union country will be able to release even a portion of the 130 billion euros for the Greeks, if there is no functioning government that respects the rules and manages the disbursed money,” he said in Brussels.

Eurozone finance ministers are due to meet on Monday in Brussels.

Speaking in Berlin, German Chancellor Angela Merkel Wednesday stressed that EU countries that have signed the bloc’s fiscal pact for greater budgetary discipline must stick to what they have agreed.

“Everyone must stick to the things we have agreed. Twenty-five countries have already ... signed the fiscal pact,” Merkel told reporters in remarks seen as directed at both Greece and France, whose president-elect Francois Hollande has also said he wants to renegotiate the deal.

German Finance Minister Wolfgang Schaeuble added, “If Greece wants to remain in the eurozone, there is no better solution than the path it has already taken.

Referring to austerity cuts and reforms in return for loans, he said, “You can’t have one without the other.”

Although his party came second in the polls, left-wing Syriza party chief Alexis Tsipras has been tasked with forming a government as the party that won the most votes, New Democracy, failed to garner enough support for a coalition on Monday.

Tsipras, 37, has two more days to form a coalition, with meetings due Wednesday with the leaders of Pasok and New Democracy.

He has already made his position against the austerity measures abundantly clear.

“The public verdict has clearly nullified the loan agreement and (pledges) sent to Europe and the IMF,” Tsipras said in a televised address on Tuesday following weekend elections that decimated the vote of the pro-austerity parties.

“Citizens have crushingly voted against the barbaric policy of loan agreements.

“This was a mature, conscious political choice,” he said.

New Democracy leader Antonis Samaras conceded that it was “certainly realistic” to renegotiate the bailout terms to give the Greek economy some respite.

His socialist rival Evangelos Venizelos, who heads Pasok, also said it was necessary to “look for the best amendment possible of the terms” of the agreed austerity measures.

But outgoing Prime Minister Lucas Papademos’ economics advisor warned that throwing the austerity measures to the wind would mean leaving the eurozone.

“If we say no to everything, we leave the eurozone,” warned Gikas Hardouvelis.

Speaking on Skai Radio he said Greece “has room for renegotiation,” but warned that “we should not oversell it and think that suddenly something has changed in Europe because the people here have shouted no”.

“We have seen the reactions of European leaders... The only thing they are saying is that Greece is heading towards the exit of the euro,” said the former banker on Skai Radio.

Sunday’s general elections did not produce a clear winner in Greece, and if a new government cannot be formed by May 17, new elections will be called.

European stock markets and the euro slid further on Wednesday as investors sought shelter from the strains in the eurozone driven by the political upheaval in Greece and France.

On the eurozone bond market, borrowing rates for Spain and Italy rose sharply while Germany attracted safe haven flows, driving its borrowing rate to record lows.

Tsipras is to visit Paris Thursday for talks with French far-leftist Jean-Luc Melenchon, another opponent of austerity measures, and a spokeswoman for his party said he had also asked to meet Hollande.

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