Euro zone finance ministers have dropped plans for a face-to-face meeting on Wednesday on Greece’s new international bailout, saying party leaders in Athens failed to provide the required commitment to reform.
With the European Union’s patience at breaking point, ministers downgraded the talks to a telephone conference call, almost certainly killing off any chance they would approve a 130 billion euro ($170 billion) bailout on Wednesday which Greece needs by next month to avoid a messy bankruptcy.
Ministers in the Eurogroup said Greece had failed to say how it would fill a 325 million euro gap in budget cuts promised for 2012 and to persuade all party leaders to sign a commitment to implement austerity measures after an election expected in April.
A government source said late on Tuesday that Antonis Samaras, who will probably be the next prime minister, would sign the commitment on Wednesday morning – again running up against a deadline and infuriating EU leaders.
Samaras has criticized the measures, which parliament passed early on Monday as rioters wrecked buildings across central Athens. He says the cuts could plunge the country, already in its fifth year of recession, into an even bigger slump.
When parliament debated the austerity package on Sunday he indicated that he would try to renegotiate the terms of the bailout, increasing doubt in the minds of European leaders.
Greece’s cabinet negotiated late into Tuesday on solving the problem of the 325 million euro hole in the 3.3 billion euros of extra budget cuts the government has promised for this year.
The EU and IMF want Greece to account for every cent of budget cuts before they approve the rescue, which includes a bond swap, cutting the real value of private sector investors’ bond holdings by some 70 percent.
There were signs of encouragement. The European Central Bank has decided to distribute profits from Greek bonds to member states, which they could decide to pass on to Athens as part of the debt deal, Governing Council member Luc Coene said.
But Greece’s downward economic spiral has accelerated. Data on Tuesday showed that economy shrank seven percent in the fourth quarter of last year, even more than the five percent contraction of the third quarter.
Greece is well on its way to suffering one of the biggest slumps of modern history. Gross domestic product has contracted 16 percent from its peak and the austerity will make that worse.
Prime Minister Lucas Papademos has said that failure to back the bailout would consign Greece to economic catastrophe.