Greece is facing an acute political and
social crisis this weekend as the bankrupt state prepares to decide whether it
can stay in the single currency.
As riot police
clashed with protesters on the streets of Athens, and five ministers resigned
in protest at the scale of the spending cuts demanded in return for a new
€130bn (£108bn) bailout, Evangelos Venizelos, the Greek finance minister and
socialist leader, said the country had until Sunday to choose whether to
swallow the eurozone medicine of more cuts – or default on its debt next month
and be forced out of the euro.
In an
emotional speech he said: "The choice we face is one of sacrifice or even
greater sacrifice – on a scale that cannot be compared. Our country, our
homeland, our society has to think and make a definitive, strategic decision.
If we see the salvation and future of the country in the euro area, in Europe, we have to do whatever we have to
do to get the programme approved."
Police
ringed the Greek parliament building following the failure of eurozone finance
ministers to approve the new bailout for Greece. Prime minister Lucas Papademos had
offered new austerity measures worth €3.3bn to secure the euro lifeline, but he
was told the cash would not be forthcoming until savings of an additional €325m
were identified. He was told to get the €3.3bn programme endorsed and come up
with a plan for the new cuts – to plug a gap in this year's budget – by Sunday.
George
Karatzaferis, a Greek coalition leader, spoke of national humiliation and said
he would not accept the new cuts, adding that Greece was labouring "under the
German boot".
The scenes
of violence in Athens shattered the mood of calm that has characterised the financial markets
this year. The French and German stock markets closed down around 1.5%.
The anger
from the extreme right in Greece was echoed on the left where a
resigning socialist minister accused the eurozone of "extortion" in
its policies towards Athens.
In Germany, Angela Merkel was reported to have
warned her centre-right MPs of "uncontrollable consequences" for the
eurozone should Greece become the first euro nation to
declare sovereign default on its soaring debt. Her finance minister, Wolfgang
Schäuble, told the same MPs, according to reports in Berlin, that Athens' latest pledges over spending cuts
fell well short of what was needed.
EU
ministers demanded that the three party leaders of the caretaker coalition
under Papademos deliver signed pledges on the programme, making them binding
and irreversible regardless of who wins an early general election expected in
April.
"This
certainly violates the sovereignty of the country and doesn't allow democratic
choices to work," a government minister from a southern eurozone country
told the Guardian. "But it's tough when you need the money."
Papademos
told the cabinet, which endorsed the loan agreement tonight, the country had no
choice – "our priority is to do whatever it takes to approve the new
economic programme". Anyone who disagreed would have to leave the
government.
The aim of
the second Greek bailout in two years is to cut the country's debt from 160% of
gross domestic product now to 120% by 2020. Ostensibly this is to be achieved
by €130bn from the eurozone and the IMF, combined with swingeing spending cuts
and tax rises and a write-down of debt by the country's private creditors
through a debt swap pact halving the burden from €200bn to €100bn. But the
€130bn is no longer viewed as sufficient and Schäuble was said to have told MPs
that under Greek pledges the debt level would still be between 128% and 136% of
GDP by 2020.
Separately,
in an embarrassing admission captured on camera during a meeting in Brussels,
Schäuble assured the Portuguese finance minister he would be prepared to adjust
the terms of Portugal's €78bn bailout programme once the Greek situation was
resolved – remarks viewed as incendiary given the tough line taken with Athens.
"If there appears a necessity for an adjustment in the Portuguese
programme we would be ready to do that," Schäuble said. Portugal's Vitor Gaspal replied:
"That's much appreciated."
The
eurozone's finance ministers are to meet again in Brussels on Wednesday to sign off on the
bailout terms and the debt swap pact on condition that Athens has met the stringent conditions.
Karatzaferis,
leader of the extreme right Laos party in the three-party coalition,
said he would vote against the austerity package and was willing to quit the
coalition in protest. "Greece can't and shouldn't do without the
European Union, but it could do without the German boot," he said.
"What has particularly bothered me is the humiliation of the
country."
The other
two coalition partners, the Pasok socialists and the conservative New
Democracy, have a sweeping parliamentary majority and do not need
Karatzaferis's 16 votes. The Pasok deputy labour minister, Yannis Koutsoukos,
who resigned in protest on Thursday, accused the "troika" – officials
from the European commission, ECB and IMF – of behaving "in an
extortionate manner that is completely improper and shameless".
Without the
new bailout, Greece will be unable to redeem more than
€14bn of debt on 20 March, leaving the country in sovereign default and
ushering in an even bigger crisis in the eurozone's distressed periphery.
