Euro zone finance ministers have given Greece two weeks from today to approve stricter austerity measures in return for another €12 billion in emergency loans.
After two days of crisis meetings, the ministers effectively issued Greece an ultimatum. They said the Greek government, parliament and broader society had until July 3 to approve a new package of spending cuts, tax hikes and privatisation measures in order to receive the next tranche of EU/IMF aid.
'The approval of the Greek parliament is absolutely essential and it will have to arrive in a timely fashion so we can take a decision on July 3,' said Jean-Claude Juncker, who chairs the Eurogroup of the 17 euro zone finance ministers.
Greece's newly-appointed finance minister, Evangelos Venizelos, issued a statement shortly before Juncker spoke, saying he would strive to ensure that the already re-worked austerity package was approved.
Greece risks defaulting on its debts if the next tranche, the fifth instalment of €110 billion of loans agreed with Athens in May 2010, is not released in time.
In parliament, Greek legislators debated the highly unpopular plans, which aim to produce a further €6.5 billion in budget consolidation this year via tax hikes and spending cuts that will squeeze the public sector tightly.
On Sunday, Prime Minister George Papandreou appealed to the nation to accept steps that certainly in the short-term will make life harder for most citizens.
'The consequences of a violent bankruptcy or exit from the euro would be immediately catastrophic for households, the banks and the country's credibility,' Papandreou said at the start of a confidence debate on his new crisis cabinet.
Inspectors from the EU and IMF will make a further visit to Athens this week - having just completed an inspection - to examine changes the country wants to make to the plan, Olli Rehn, the EU's monetary affairs commissioner, said.
In order to impose a deadline on Athens, Juncker said he had already scheduled an extraordinary meeting of euro zone finance ministers for July 3.
'Voluntary' private contribution planned
While it seems likely that Athens will eventually get the next tranche, as well as a further emergency loan programme of around €120 billion up to the end of 2014, the net result is only to buy Greece more time.
After their meeting into the early hours of this morning, the euro zone ministers issued a statement saying that they were ready to put together a second package of loans for Greece, despite the country having missed debt targets in the first package.
The second package, to be outlined by mid-July, will include more official loans and, for the first time, a contribution by private investors, who will be expected to make voluntary purchases of new Greek bonds as existing ones mature.
The statement did not say how large the new bail-out would be, or give details of the private sector contribution beyond describing it as 'substantial'.
In an attempt to win the cooperation of the ECB, which opposes any scheme that would cause credit rating agencies to declare Greece in default, the ministers said the private sector debt rollover would avoid even a limited or 'selective' default. They did not say how this would be achieved.
Discussions with private sector creditors - European banks, pensions funds and other investors in Greek bonds - have already begun, but German Finance Minister Wolfgang Schauble said there was some way to go before there is an agreement.
