Greece faces further obstacles in bailout deal

By Gabriele Steinhauser

Associated Press

Published: Monday, Feb. 13 2012 10:20 a.m. MST

An employee of the Greek Stock Exchange passes past charts with stock prices, indicating gains, in Athens, Monday, Feb. 13, 2012. World stock markets rose Monday after Greece's parliament approved a new set of austerity measures that were required by international lenders in exchange for an emergency bailout.

Thanassis Stavrakis, Associated Press

Enlarge photo»

BRUSSELS — Greece faces further hurdles and delays before it can receive a second, €130 billion ($171 billion) bailout in spite of its lawmakers voting through more austerity measures in the face of violent protests.

The European Union's Economic Affairs Commissioner Olli Rehn on Monday called the Greek parliament's approval of a further round of budget cuts a "crucial step forward," but Germany insisted it would still take some time before the second bailout is delivered.

Germany, which as Europe's biggest economy pays the largest part in bailout deals, said it wouldn't give its final approval for the new aid payments until early March — after it became clear how many banks and investment funds were willing to take losses on their Greek bonds and the parliament in Berlin had voted on the new measures.

Pushing the new bailout back for several weeks underlines the amount of distrust that has built up against Greece over the past two years, when many promised cuts and reforms were passed in its Parliament but never actually implemented.

But it also means that Greece, its citizens, and the rest of the world economy won't know for several weeks whether the country can avoid a potentially disastrous default. A bankruptcy could force Greece out of Europe's euro currency union, drag down other troubled eurozone countries and further roil global markets.

"Germany is trying to get the best deal it can by putting pressure on Greece now," said Ben May, European economist at Capital Economics in London. The idea is to "give Greece a bit more of an incentive over the next few weeks to speed things up and get things moving."

But delaying the final approval of the bailout is not without risk. Uncertainty over the new rescue money could dissuade some of Greece's private investors from participating in a separate bond swap deal, May warned. A hitch in getting the bailout package through national parliaments in the eurozone could also push Greece perilously close to missing a €14.5 billion bond redemption on March 20, he added.

Greece's political leaders scrambled over the weekend to get new far-reaching austerity measures through Parliament ahead of a meeting of the finance ministers from the 17 euro countries on Wednesday. The drastic cuts debated on Sunday included axing one in five civil service jobs over the next three years and slashing the minimum wage by more than a fifth.

As Greek lawmakers voted on the new cuts, the streets of Athens and other cities were rocked by violent protests. In Athens, at least 45 buildings were burned while dozens of stores and cafes were smashed and looted. Police arrested at least 74 people and detained a further 92, while in several cases they had to escort fire crews to burning buildings after protesters prevented access.

However, the Greek Parliament's vote hasn't brought an end to the uncertainty. Apart from some technical decisions, several key issues remain:

—It is unclear whether the new spending cuts, the debt relief deal and the new bailout will be enough to bring Greece's debt load down to 120 percent of economic output by 2020 — the maximum its international creditors perceive as sustainable.

Several weeks ago, the EU estimated that there was still a financing gap of around €15 billion ($20 billion) and an EU official on Monday could not say whether the gap has since decreased. There is hope that the European Central Bank, which also holds a significant amount of Greek debt can help close that gap by forgoing profits on those bonds.

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