JUNE 20, 2011, 1:33 P.M. ET
EU Urges Greece to Back More Austerity
By RIVA FROYMOVICH And MATTHEW DALTON
BRUSSELS—European Union leaders expressed confidence Monday at a meeting in Luxembourg that Greece will concede on implementing economic reforms in exchange for the next tranche of aid to help it avoid default.
Georges Gobet/Agence France-Presse/Getty Images
Eurogroup President Jean-Claude Juncker, left, listened to German Finance Minister Wolfgang Schauble prior to the start of euro-zone finance ministers meeting at EU headquarters in Luxembourg on Monday.
A formal decision to disburse €12 billion ($17.17 billion) to Greece should be taken by early July, after the Greek government commits to a new austerity package, said Eurogroup President Jean-Claude Juncker, who also serves as prime minister of Luxembourg, and European Union Economic Affairs Commissioner Olli Rehn. The Eurogroup will convene on July 3 for an extraordinary session to tackle the issue.
“These measures should ensure that Greece continues to correct its public finances and reform its economy to create the conditions for sustainable growth and job creation,” Mr. Rehn said.
Europe thought it had put Greece’s troubles to rest last spring with a mammoth bailout that rewrote the contract among the euro’s member countries. Now, Greece needs more help. Charles Forelle reports from Brussels. (Photo: AFP / Getty Images.)
Euro-zone finance ministers also agreed Monday that the “preferred-creditor status” for the currency area’s permanent rescue fund as of 2013, the European Stability Mechanism, will be dropped for countries already participating in a bailout program.
There were fears that the preferred-creditor status would reduce incentives for private investors to buy the stability fund’s bonds because the euro-zone institution would be paid first in the case of default.
“It’s good news for Greece. It’s good news for Ireland. It’s good news for Portugal,” Mr. Juncker said.
The ministers agreed on a treaty for the mechanism, paving the way for national governments to vote in the coming days.
Leaders repeated that access to the ESM will come with strict conditions and that private creditors will play a role.
Private-sector involvement “will be the rule” for the ESM, said Klaus Regling, head of the European Financial Stability Facility, the ESM’s precursor.
However, leaders added that private investor involvement in Greece’s rescue will be voluntary to avoid default.