Eurozone set to decide on Greek rescue

Eurozone finance ministers are expected to approve a $170bn second bailout package for Greece in order to prevent the beleaguered country from defaulting on its debt.

After weeks of difficult negotiations, the ministers are scheduled to start meeting at the EU headquarters in Brussels from 3:30pm local time (14:30 GMT) on Monday, bidding to greenlight terms on an exchange of bonds held by private investors.

Senior officials from eurozone finance ministries and the European Central Bank held a conference call on Sunday to go over the final details of the bailout, including a debt sustainability analysis critical to the International Monetary Fund [IMF].

For the caretaker Greek government led by technocrat Lucas Papademos, financial aid is needed to meet bond repayments of 14.5bn euros [$18.8bn] due on March 20.

Papademos flew to Brussels for last-minute preparations as thousands of demonstrators massed in the capital Athens’ central Syntagma square.

Riot police deployed

Riot police shielded the national assembly, braced against a repeat of riots a week ago that saw buildings torched and looted across the business district of Athens after a much larger rally involving tens of thousands.

There have been demonstrations in many cities across Europe in solidarity with Greek people who have been hit hard in the wake of massive austerity cuts.

Greek parliament last week passed austerity measures worth 3.3bn euros [$4.3bn] that included cuts in pension, salaries and tax increases.

There is still scepticism in Germany and other countries that Greece will be able to live up to its commitments, but officials said momentum was building for approval of the deal.

Germany and The Netherlands still need to get the second bailout passed in their respective parliaments.

“At the moment it appears it will go exactly this way,” Maria Fekter, Austrian finance minister, said.

The overall objective is to reduce Greece’s debts from 160 per cent of GDP to around 120 per cent by 2020 – the figure and timeframe that the IMF, ECB and the European Commission, together known as the troika, have established as sustainable.

The IMF has said if the ratio cannot be cut to around 120 per cent, it may not be able to help finance the Greek programme.

Tim Geithner, the US treasury secretary, has urged the IMF to support the programme.

“This is a very strong and very difficult package of reforms, deserving of support of the international community and the IMF,” Geithner said in a statement on Sunday.

As per the deal, Greece will also have around 100bn euros of debt, with private lenders – banks and insurers – taking a 70 per cent reduction in the value of their Greek assets.

There are also discussions about marginally lowering the interest rate on 110bn euros of bilateral loans already made to Greece in May 2010 – the first package of support – to lighten the financing burden on Athens.

Immediate relief

If the finance ministers do succeed in reaching an agreement on Monday, it will provide immediate relief to Athens and financial markets.

But no one is pretending it will end Greece’s problems. Figures last week showed its economy shrank seven per cent year-on-year in the last quarter of 2011, with further cuts likely to make matters worse.

Al Jazeera’s John Psaropoulos, reporting from Athens, said: “Well, the mood is definitely growing gloomier in Athens since the coalition government was formed last November.”

“Back then, you had a vast majority of Greeks, three quarters of voters, were in favour of staying within the eurozone, of extending the life of coalition government as long as possible to delay the elections and all the disruptions that they might bring,” he said.

“Now those numbers have changed. Eurozone membership support has fallen to about 60 per cent and belief in bailout system as fallen to such an extent that now fully 48 per cent Greeks, according to a poll last week, would rather have bankruptcy than the austerity measures.

“Lowering of faith the in this government. Now 60 per cent of Greeks say they are in favour of elections.”

Greece has been in recession for the last five years and it is highly unlikely to do well in the next one decade with huge spending cuts.

The troika, which is responsible for monitoring Greece’s reform progress, carries out quarterly reviews, while the European Commission will soon have dozens more monitors on the ground in Athens as part of the second package.

Italy, with national debts nearly four times greater than Greece’s at 1.3 trillion euros, and Spain, where hundreds of thousands of anti-austerity protesters took to the streets on Sunday, risk renewed financial-market contagion if the deal breaks down.