Jean-Claude Juncker, Prime Minister of Luxembourg, and President of the Eurogroup, decided instead to conduct a telephone conference call with the euro zone finance ministers.
He blamed Greek political leaders for failing to provide written commitments regarding their promise to stick to the newly passed austerity measures after Greece’s April elections and pay the 325 million euros demanded by Euro zone nations.
Greece was hoping to secure a debt swap deal with private sector bondholders by Friday to meet their March 20 debt deadline of 14.5 billion euros. They were expecting to gain support for their second bailout this week.
On Wednesday Greece agreed to pay the EU’s additional 325 million requirement.
“Greece has now met all conditions set by the European Union and International Monetary Fund for the lifeline,” Finance Minister Evangelos Venizelos told reporters in Athens.
And Athens News reported that a written commitment was issued from Antonis Samaras, leader of New Democracy, who has shown reluctance in the past to accept the EU austerity plan.
However, Samaras’ written commitment is somewhat vague and ambiguous in certain areas of the letter.
Reuters is reporting that if the delayed support comes on Monday, it is possible the debt swap could start mid-next week.
France and Germany have proposed the creation of a special escrow account that could be used to ensure Greece services the debt it owes to Euro zone governments.
Meanwhile, the Netherlands and Finland have proposed moving up the timeline of Greece’s elections in advance to help ensure that Greece implements austerity measures ahead of their second bailout.
Given the large size and scope of the periphery debt that is due in the Euro zone in 2012, there are legitimate capitalization fears in Europe’s banks, even with the ECB providing a backstop with their “quantitative easing by the backdoor” and their €489bn loan program announced in December 2011.
There are also renewed concerns that Greece will fail to honor their austerity pledges and fail to generate enough growth to pay down their looming debts.
In 2010 Greece received their first bailout package of 110 billion euros but the country was slow to implement austerity measures tied to the package. The Greek government has consistently broken promises and failed to follow through with the 2010 EU austerity package.
Based on Greece’s track record of broken promises, it is no surprise that the EC, ECB, and IMF are now concerned about Greece’s willingness to implement their new 2012 austerity measures, especially with recession underway in much of the Euro zone.
When a country enters a recession, one of the monetary policies that is undertaken to help improve the economy includes devaluing their own currency to make exports cheaper on the international market, gain a competitive advantage with lowered employment costs, and stimulate investment and business activity (e.g. tourism) in the country.
Greece is currently unable to devalue their own currency due to the fact that they are a member of the Euro zone and tied to the Euro which is centered in Brussels. Some economists believe that if Greece defaults and leaves the Euro zone, they can return to the Drachma and enact some of the systemic monetary changes that may help to accelerate economic growth in Greece and help them to possibly return to the Euro zone at a later date. But other economist believe that it is in Greece’s best interest to remain in the Euro zone even without much control or leverage over the Euro currency.
The list of countries that have defaulted on their loans is quite extensive.
Here is a list:
Venezuela(1998), Russia (1998), Ukaraine (1998-2000), Ecuador (1999, 2008), Peru (2000), Argentina (2002), Moldova (2001-2002), Uruguay (2003), Dominican Republic (2005), and Belize (2006). The default list can be found here.