Aid for Athens: France Demands Direct Funding for Greek Banks
Europe has decided to release billions more in aid money to Athens pending progress on reform. But France believes it isn't enough and is demanding that ailing Greek banks be given direct assistance from European bailout funds. The proposal is controversial.
European finance ministers on Monday night agreed to release some 6.8 billion ($8.8 billion) in aid money to Greece to keep the country solvent throughout the summer. But on Tuesday, France said that it is time to pony up even more money to help the ailing Greek banking system.
First, however, Greece needs to make sure that it fulfils the conditions necessary to receive all of the next aid tranche. European finance ministers made it clear on Monday evening that they are dissatisfied with the progress Athens is making on reform and elected to break up the tranche into smaller payments in order to keep the pressure on the Greek government to fulfil their pledges.
The agreement reached on Monday night foresees an initial payment of 2.5 billion this month to be followed up by more payments in subsequent months. Greece's creditors are primarily concerned by the slow progress Athens has made on downsizing its public sector, with thousands of additional layoffs pending. The country's privatization program has also generated much less cash than expected, most recently as a result of the government's inability to find a buyer for the natural gas company DEPA. Tax reform and the pursuit of tax dodgers is another area where Greece's creditors have demanded improvement.
"It's time to step up the momentum of reform in Greece," said European Commissioner for Economic and Monetary Affairs Olli Rehn on Monday night.
Still, the public sector cuts are controversial in Greece, with thousands of teachers and municipal workers taking to the streets of Athens on Monday and Tuesday. Some 12,500 state employees are to be placed on administrative leave by the end of September with an additional 12,500 to join them by the end of the year. They will receive 75 percent of their salary for eight months. If they haven't found a new job by then, they will be unemployed.
There is concern that the additional cuts could further damage the country's fragile economy which, while slowly improving, is still stuck in its sixth straight year of recession. Economists forecast that the country could return to growth next year -- a tiny increase of just 0.6 percent -- but some worry that dividing up aid payments could derail the slow recovery.
Greece too has seen its share of political instability in recent weeks, with the government of Prime Minister Antonis Samaras almost collapsing due to its sudden and controversial shutdown of public broadcaster ERT. One of the parties in his three-party coalition left, leaving him with a tiny three-seat majority in parliament.
It is unclear whether France's proposal to provide direct aid to Greek banks will gain much traction. Some 60 billion of the 500 billion ESM fund has been made available to provide direct assistance to euro-zone banks that need it. But it remains controversial. Furthermore, European leaders only recently agreed to involve shareholders, creditors and individual countries should large banks find themselves in need of help. It remains unclear whether that agreement applies to existing cases like Greece.
cgh -- with wire reports
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