Europe bids for time in Greek bailout 'quarrel'

Europe on Thursday sought to buy time amid costly squabbling over a second bailout for Greece as Athens fought to stave off a bankruptcy that would place huge strain on the euro. French President Nicolas Sarkozy said Europe "must leave behind national quarrels to rediscover our sense of a common destiny," on the eve of crunch talks with German Chancellor Angela Merkel aimed at finding a way to share the bailout burden between taxpayers and private sector banks. "What we need more than anything today is unity," Sarkozy said. "Without the euro, there is no Europe and without Europe there is no possible peace and stability. We have no right to damage the euro." His rallying cry came as embattled Prime Minister George Papandreou attempted to form a new unity government in Athens and as the clock ran down ahead of a European Union summit in Brussels next week which was meant to sign off on a second debt bailout accord. Deeply divided over how to bring on board the private sector after a breakdown in talks among finance ministers this week in Brussels, the EU's economic affairs commissioner Olli Rehn pointed to a short-term fix. Rehn said that backers from the 17-nation eurozone should agree at 11th-hour talks in Luxembourg on Sunday and Monday to provide Greece with their 8.7-billion-euro share of a 12-billion-euro fifth tranche of loans due to Athens under last year's 110-billion-euro bailout. He said he expected the 3.3-billion-euro portion due from the IMF, which has been in doubt following an expert review of Greek economic reforms and awaiting political approval in Athens, to follow. In Washington, the International Monetary Fund said it could renew its support provided reforms and additional austerity measures agreed with the Greek government get through the country's parliament. With Greek bond yields still rising on Thursday following massive protests on the streets of Athens, Rehn also urged European decision-makers to put aside their differences "at this critical juncture." But he stressed that commitments as to the scale and scope of the second Greek rescue package -- tipped to be almost as big as the first -- could be thrashed out later, at a eurozone meeting on July 11. In that event, "the funding of the Greek sovereign debt can now be ensured until September, while we take the decisions for the medium-term, beyond September, in July," Rehn stressed. An EU diplomatic source told AFP that the fine detail of that medium-term financing deal could actually wait until September. That outcome could mean a breakthrough in the current stalemate over how to nudge banks, pension funds and insurers into restructuring their existing debt exposure to Greece over a longer timeframe. Merkel heads a group of blue-chip eurozone economies bent on pressing private investors to contribute up to a third of the second rescue package by accepting later repayment on the Greek bonds they hold. Sarkozy on the other hand backs the European Central Bank (ECB) and the European Commission, which want the private sector to contribute on a "voluntary" basis to a second bailout, hoping thereby to avoid any action which the key credit ratings agencies would deem to be tantamount to a default. Rehn said the new phased approach "will avoid the default scenario" but warned that responsibility also fell on the shoulders of the Greek authorities and its political leaders. "We expect the Greek parliament to endorse the economic reform programme as agreed by the end of June," he said, referring to more public sector cuts, increased taxes and a vast swathe of state sell-offs. After months trying to come up with a "comprehensive solution" for the June 23-24 summit, finding a way to manage Greece's 350-billion-euro debt mountain has taken on sudden urgency as the government in Athens faces meltdown. Defections by governing party lawmakers have seen it teeter on the brink of collapse as tens of thousands of protesters mount vigils, sometimes violent, opposing the additional austerity measures demanded by the international community in exchange for further help.