Thursday, June 16, 2011

EU and IMF Blink; Reach Greek Debt Deal

The European Union’s top economic official says he has reached a deal with the International Monetary Fund to avoid a Greek default, but warned political leaders in Athens they must agree to a new round of controversial austerity measures or the agreement would be meaningless, reports FT.

Olli Rehn, the EU’s economic commissioner, said the IMF deal would allow international lenders to disburse €12bn ($17bn) to Greece even without an agreement on a new €120bn bail-out for Athens.

The IMF for weeks had been insisting that it could not pay its €3.3bn portion of  the disbursement without the new full bail-out plan , but in recent days IMF officials have backed down from the demand.

The EU-IMF agreement appears to kick the can down the road only for a couple of months. German officials, the hardliners in making additional loans, are now suggesting putting off a decision on the full bail-out – including how to involve private bondholders – until September, when another €8bn payment to Greece is due.

Still even the current agreementt requires the Greek government to deliver, against the will of its people, on new austerity measures. There will be enormous pressures on Greek government leaders to deliver for the banksters, at the same time the Greek people riot in the streets.

Prime Minister George Papandreou will announce later today a new cabinet in an attempt to shore up fast-eroding support for any austerity program, as more members of his Socialist Party come out in opposition.

On Thursday, two Socialist party members withdrew their support for the government's radical austerity plan. That brings to four the number who have defected this week alone.

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