Euro ministers opt to await Greece's next move

Hours of talks between eurozone finance ministers on the imploding finances of Greece break up in Luxembourg without the politicians signing off on a vital instalment of rescue loans.

Athens must pass huge spending cuts to assure another financial lifeline

Protesters raise their arms during a rally against financial austerity measures and corruption in front of the parliament in Athens's Constitution Square on Sunday, as European finance ministers met in Luxembourg to agree on measures to keep the country afloat. (Yiorgos Karahalis/Reuters)

Hours of talks between eurozone finance ministers on the imploding finances of Greece broke up early Monday morning in Luxembourg without the politicians signing off on a vital instalment of rescue loans needed to avoid bankruptcy next month.

Greece will get the next $16.8 billion of its existing $154-billion bailout package in early July, but only if it manages to pass $39 billion in new spending cuts and economic reforms by the end of the month, said Jean-Claude Juncker, the prime minister of Luxembourg, who also chairs the regular meetings of the 17 eurozone finance ministers.

Greek Prime Minister George Papandreou has dismissed calls for his government to back down on efforts to reduce Greece's massive debt, saying any move to default would be a catastrophe for the country's households and banks alike. ((Dimitri Messinis/Associated Press))

"We have to, of course, await this vote" by the Greek parliament, Juncker said as he left the meeting.

However, Juncker said that as long as the parliament supported the new measures, he was certain that Greece would also get a second bailout — on top of the existing one — that will keep it afloat over the coming years as it works to restore its struggling economy. Greek Prime Minister George Papandreou said Sunday that his country was in talks for a new bailout similar in size to the first one.

In a statement, the ministers said that the private sector would contribute to the new package of rescue loans on a voluntary basis. Banks and other private creditors will be asked to buy up new Greek bonds as old ones mature, thereby reducing the amount of money other eurozone countries and the International Monetary Fund will have to provide.

"No pressure may be exerted on the private sector," Juncker stressed, since any sign of coercion could force rating agencies to consider the bond-rollover as a partial default. Such a negative rating could take down Greek banks and further shake other struggling euro countries like Ireland and Portugal, economists have warned.

Juncker said he planned to convene a special finance ministers meeting in the first days of July, where the remaining questions would be finalized. He said that because of the voluntary nature of the roll-over, it was too early to put a number on the private sector's contribution.

The meeting of the 17 eurozone nations came after a tumultuous week that saw rioting on the streets of Athens, a Greek cabinet reshuffle and days of market turmoil that sent borrowing costs spiking. A default by Greece could cause ripples around the world, disrupting the global economy similarly to the collapse of several major U.S. investment banks in 2008, including Lehman Brothers and Bear Sterns.

Just before the meeting broke up, the finance chiefs of the United States, Canada, Japan and Britain were updated on the discussions taking place in Luxembourg in a conference call limited to the Group of Seven rich nations, underlining the heightened level of concern over Greece's fortunes.