Europe demands tough budget cuts in Greece

Europe promised Monday to unblock existing bailout loans for Greece Europe promised Monday to unblock existing bailout loans for Greece and draw up a second financial rescue as long as its parliament approves fierce new budget cuts and a raft of asset sales .
After seven hours of crunch talks aimed at averting Greek default and fears of a domino effect across their shared currency area, eurozone finance ministers dangled both carrot and stick at Greece.
They said the Eurozone and the IMF would release 12 billion euros of loans in "mid-July" once lawmakers did their bit.
They also agreed on a roadmap for a second, 100-billion-euro ($156 billion) bailout, which would involve taxpayers' money but also a "substantial" contribution via the "informal and voluntary rollovers of existing Greek debt at maturity" by private banks, pension funds and insurers.
Greece needs funds to avoid a repayments bottleneck next month, but ahead of a parliamentary confidence vote in Prime Minister George Papandreou's reshuffled government set for Tuesday, Eurogroup chair Jean-Claude Juncker said it was "obvious" that commitments to hand over more money could not be given prior to parliamentary backing for conditional austerity.
"We stressed forcefully that the Greek government, by the end of this month, must act so as to convince us that all the commitments entered into by the Greek authorities are met," Juncker said, referring to negotiations with the European Union and International Monetary Fund.
A controversial budget plan, including 28.4 billion euros of fiscal belt-tightening, along with a vow to make 50 billion from privatisations by 2015, has triggered civil unrest.
While "the political situation has evolved," Juncker said, "we have to wait for the final vote on the programme.
"We still sense the need for a deal between the main Greek parties," he warned, despite new Greek finance minister Evangelos Venizelos vowing "we can achieve our targets."
Only once lawmakers bite the bullet will that "pave the way for the next disbursement by mid-July," the Eurogroup said -- releasing 8.7 billion euros from eurozone governments and 3.3 billion from the IMF.
Ministers though stressed the need thereafter for "rigorous and expeditious implementation" of Greek promises.
"Given the length, magnitude and nature of required reforms in Greece, national unity is a prerequisite for success," they added in a statement.
Showing the extent of international fears over renewed financial contagion, 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.
Wrapping up moments before the opening of Asian markets, ministers said banks, pension funds and insurers will be invited to agree to "informal and voluntary rollovers" of existing debts years after their original redemption dates.
The litmus test, they said, was that the private sector contribution would be one "avoiding a selective default," meaning different ranking for different creditors, public and private.
"On these conditions, ministers decided to define by early July the main parameters of a clear new financing strategy."
However the initial verdict from Asia was less than enocouraging, with the euro falling against the dollar in a trend that dealers said reflected the continuing uncertainty surrounding the bailout.
The euro fell to $1.4235 in Tokyo afternoon trading from $1.4301 in New York late Friday. The European single currency also sagged to 114.11 yen from 114.46 yen.
European Union leaders are trying to agree the broad outlines of the new bailout for the autumn at this week's summit.
The idea is to shield Greece from the vagaries of commercial money markets 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.
A diplomatic source said the plan all week was to keep Greece afloat while testing market reaction, seeing if bond spreads widen for other stressed eurozone states.