Confidence motion sets the stage for a tough summit

EU leaders will try to plot a way forward for Greece, writes ARTHUR BEESLEY , European Correspondent

THE CONFIDENCE motion in Greek premier George Papandreou sets the stage for a difficult summit at which EU leaders will seek to plot a way forward for his country without sparking further turmoil in sovereign debt markets.

The leaders, who are trying to overcome deep divisions over the scope of a second Greek bailout, gather in Brussels tomorrow for dinner with European Central Bank chief Jean-Claude Trichet. The talks will then resume on Friday.

While the leaders are under pressure from the International Monetary Fund to provide certainty over a second rescue package for the country, the talks will take place against the backdrop of renewed strain in debt markets.

“It’s obvious Greece will need the continued support of the EU and continued international support,” European Commission chief José Manuel Barroso told reporters yesterday.

Central to the argument here are moves to enlist private creditors in the rescue effort, something that opened a deep rift between German chancellor Angela Merkel and Trichet.

Merkel has now relented from her push for something more than a voluntary scheme to bring private investors into the rescue effect.

This brings her back in line with the ECB, but tensions remain.

“We think that there is a justification of sharing with the private sector if it doesn’t give rise to a credit event or a default, even selective default, and if it’s all done in total harmony with the ECB,” Barroso said. “So I think we’re going to listen to what the ECB has to say.”

Officials preparing for the summit have worked on the assumption that Papandreou would survive the confidence vote and that he will be in a position to deliver a parliamentary majority next week in favour of a drastic new austerity and privatisation plan. A positive vote in both cases would clear an important hurdle in the way of the €12 billion bailout loan which Greece needs to avert defaulting on its debt in the middle of next month.

However, the IMF will not decide to release its €3 billion portion of the loan until the European authorities provide clarity over a second rescue package for the country.

This puts the focus on EU leaders, yet they, in turn, are relentlessly urging Greek leaders to execute deeply unpopular reforms. The country remains under exceptional international pressure.

Barroso kept his foot on the pedal yesterday, saying the Greek people must accept there is no alternative to the difficult path of austerity and privatisation.

“What is the alternative?” he asked. “The alternative would be worse than the current situation, I’m absolutely convinced of that: a major crisis in Greece.

“The EU and the IMF won’t support any other programme. I need to be absolutely clear on this. Everyone needs to take their responsibility.

“The EU is prepared to support Greece if Greece is prepared to follow the terms of the agreement we negotiated with the Greek government.”

The leaders will confirm at the summit the appointment of Italian central bank governor Mario Draghi to succeed Trichet, who retires this autumn.

They are also poised to finally sign off on a long-looming overhaul of the European Financial Stability Facility temporary bailout fund and on the treaty change required to establish the permanent fund that will succeed it in 2013 – the European Stability Mechanism.
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