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EU leaders to renew battle over Greek crisis at summit

Jun 23, 2011, 12:17 a.m.

By Luke Baker and Ingrid Melander

BRUSSELS/ATHENS (Reuters) - European leaders will try to convince Greeks and financial markets when they meet on Thursday and Friday that they have a workable plan to help Athens avoid a debt default and return to financial stability.

Using a mixture of arm-twisting and moral support, the leaders will tell Greek Prime Minister George Papandreou that they will release the latest 12 billion euros of an emergency aid package, helping Athens to avoid a potential mid-July default, as long as it commits itself to economic reform.

Greece is not formally on the agenda of the two-day summit -- the fourth this year as the leaders try to get to grips with the crisis consuming Greece, Portugal and Ireland -- but the issue will not escape discussion, diplomats said.

German Chancellor Angela Merkel has underlined that no formal decisions on Greece will be taken at the meeting, but the gathering will be monitored intensely by financial markets for any messages it sends on whether the EU plan can work.

U.S. Federal Reserve Chairman Ben Bernanke stressed on Wednesday that much more than the future of Greece was at stake.

"If there were a failure to resolve that situation, it would pose threats to the European financial system, the global financial system, and to European political unity, I would conjecture, as well," he said.

The summit agenda also involves agreeing to increase the size of the euro zone's current bailout fund, completing the creation of a permanent crisis fund from June 2013, and discussions on Libya, Syria and EU enlargement to Croatia.

"I know that many people in Greece are living through a period of great hardship and uncertainty," European Commission President Jose Manuel Barroso said on Wednesday, adding that he hoped the summit would discuss the issue.

"My message to the Greek people is that, if the government acts, Europe will deliver. If Greece can demonstrate that it is genuinely committed to the reform package agreed with the European Union and the IMF, we will accompany Greece on its journey back to growth."

Papandreou's reshuffled government won a confidence vote in parliament early on Wednesday, clearing one of several hurdles on the path to avoiding a default.

On June 28, parliament will vote on a package of spending cuts, tax increases and privatization measures that Athens has agreed with the EU and IMF. If the steps are approved, euro zone finance ministers will agree to release the 12 billion euros at a meeting on July 3, helping Greece avoid bankruptcy.

Despite calls for all Greeks to show unity in backing the measures, all opposition politicians voted against the government in the confidence vote, and 20,000 protesters chanted insults outside parliament.

"Within the parliament there is no problem at all, the real problem is in society," said Costas Panagopoulos of the polling group ALCO. "There's a lot of disappointment in Greek society, there's a lot of anger -- and there's no hope at all."

Even if Greece manages to persuade the EU and IMF that it is fully committed to making the budget adjustments demanded, this will buy the government only a few months' respite. Discussions are already under way about a possible second package of emergency financial support.

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