European finance chiefs launched crunch talks Sunday to avert the default of debt-stricken Greece amid fears of a domino effect rippling across the eurozone.
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| Greek Finance Minister Evangelos Venizelos looks on during an Eurogroup meeting at the EU Headquarters in Luxembourg. |
As a reshuffled Greek government vowed to deliver on new promises of austerity ahead of a parliamentary confidence vote set for Tuesday, its eurozone partners readied on Monday to greenlight a fifth, 12-billion-euro tranche of loans under last year\'s 110-billion-euro ($156 billion) bailout, due early in July.
Greece needs the cash to ride through next month, but beyond summer is tipped to need a second bailout almost as big as the last.
Amid warnings of the ripple effect, G7 finance ministers from Britain, Canada, France, Germany, Italy, Japan and the United States held a late-night telephone conference to discuss the Greek debt crisis, a diplomatic source told AFP.
Those talks were said to be still ongoing shortly before 1:00 am on Monday (2300 GMT Sunday), as expectant Asian markets readied to resume trading.
"All the scenarios show that a Greek payment default would have graver consequences than all other solutions," said Austria\'s finance minister Maria Fekter.
Belgian counterpart Didier Reynders warned against "a risk of contagion in a series of countries and especially the risk of a new crisis" such as the crash of US bank Lehman Brothers in September 2008 that unleashed the global financial crisis.
Releasing monies to Greece had been placed in doubt by insufficient progress towards debt reduction in Athens, amid a growing wave of protest in the Greek capital that threatened Prime Minister George Papandreou.
But the more difficult discussion is about how to ensure banks -- many of which were bailed out by governments during recession -- share the burden of a second bailout with taxpayers.
Governments still have to persuade private investors that they will not be left behind in the queue for repayments if things go belly-up further down the line.
European Union leaders are trying to agree the broad outlines of a new 100-billion-euro rescue package for the autumn at a summit in Brussels on Thursday and Friday.
The idea is to shield Greece from the vagaries of commercial money markets -- already charging sky-high rates -- until the end of 2014.
In doing so, they hope to protect the likes of Belgium or Italy, the eurozone\'s third-largest economy, from being sucked into a whirlpool of prohibitive interest rates.
Greece\'s euro partners have still to approve loans of more than 8.7 billion euros, the fifth tranche from bailout No. 1 being completed by a further 3.3-billion-euro portion from the IMF.
A diplomatic source said the idea was to keep Greece afloat while testing market reaction, seeing if bond spreads widen for other stressed eurozone states.
Some countries are resisting handing over more money until Greece demonstrates it can get new belt-tightening, tax rises and a state asset sell-off through its parliament.
"The heart of the matter is not happening here but in Athens," said Germany\'s Finance Minister Wolfgang Schaeuble.
Dutch Finance Minister Jan Kees De Jager underlined that the fifth tranche "depends on Greece\'s implementation of all the austerity measures, and the IMF\'s assessment of that."
The Greek government is battling to push through a controversial budget plan, including 28.4 billion euros ($40.6 billion) of fiscal belt-tightening, which has triggered civil unrest.
It must be adopted by the end of the month to convince creditor nations, the EU and the IMF to continue dishing out financial aid to the country.
In Athens, Papandreou on Sunday urged political parties to forge a "national accord" and back him in a confidence vote "because the country finds itself at a crucial point."
Barely 48 hours after being handed the tough Greek portfolio, and referring to a new four-year domestic austerity package, Evangelos Venizelos insisted: "We can achieve our target."