EU: No flexibility until Greek government in place

18.06.12 @ 17:33

  1. By Valentina Pop
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BRUSSELS - German and EU officials said on Monday (18 June) that there can be no softer deadlines on the Greek bail-out programme until a new government is in place.

  • The Greek bail-out drama goes on (Photo: wikipedia)

Meanwhile, the Greek election outcome has done little to alleviate Spain's woes - the eurozone's bigger worry.

The narrow victory of the pro-bail-out New Democracy party in Greece and the likelihood it can form a coalition government with its former Social-Democrat (Pasok) rival is "good news for the euro, for the eurozone and for Europe," German government spokesman Georg Streiter said on Monday in Berlin.

He backtracked on statements made on Sunday by German foreign minister Guido Westerwelle, who said that some extension of deadlines in the Greek programme could be envisaged.

"It's decisive now for the troika to be convinced that Greece will stick to its agreements and fully implement the agreed reforms. Now is not the time for any kind of discounts to Greece," Streiter said.

Westerwelle, who comes from a different party than Merkel, spoke again on Monday on German public radio, saying that his earlier remarks referred only to the "time lost" through election campaigning.

"We are willing to talk about the time frame, since you can't ignore the weeks that have been lost, and we also don't want the people to suffer who now have a very harsh life through many reforms being neglected in the past," he said.

But the finance ministry - a domain of Merkel's party - said through a spokeswoman that an upcoming €31.3 billion bail-out payment would only be disbursed when a stable government is in place and when the "troika" of international lenders finds that the reforms are on track.

EU officials privately acknowledge that even though the Greek programme may see some flexibility on one or two measures, the very precondition for any negotiation with the troika is for a government with strong parliamentary support to be in place in Athens.

EU commission chief Jose Manuel Barroso and EU Council chairman, Herman Van Rompuy on Sunday night also said in a joint statement that: "We are hopeful that the election results will allow a government to be formed quickly."

The message seems to have reached New Democracy leader Antonis Samaras, who on Monday kicked off coalition talks, saying it is "imperative" to form a coalition by the end of the day.

The Conservative leader, who last year dragged his heels on talks on the second bail-out and only reluctantly signed up to the attached reform programme, also said there should be amendments to the conditions of the EU-IMF bail-out deal "so the Greek people can escape from today's torturous reality."

A frail government under constant pressure from a strong anti-bail-out opposition led by 37-year old Alexis Tsipras, whose Syriza party came second in the elections, is likely to emerge from the talks, continuing the uncertainty about Greece's future in the eurozone, Fitch ratings agency warned on Monday.

While the immediate risk of a Greek exit has been averted, the agency said that "the crisis in Greece and the eurozone remains intense."

With worsening recession, tough budget cuts and massive outflows of capital from Greece, Fitch estimates that further funds may be needed for the struggling country.

It also called on EU leaders to come up with a "credible road map that would complete monetary union with much greater fiscal and financial integration" so as to alleviate market pressure on other euro-countries, a reference to Spain, where borrowing costs remained above seven percent on Monday - a threshold considered to be bail-out territory.

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