PARIS (MNI) – With the political and social situation in Greece
growing more chaotic by the moment, the EU’s Economic and Monetary
Affairs Commissioner Olli Rehn essentially announced Thursday that the
EU is now playing for time in efforts to ensure continued Greek funding.

In a statement released moments ago, Rehn sought to downplay
expectations for the upcoming Eurogroup meeting on June 19-20, saying
only that he was confident it would agree on disbursement of a E12
billion tranche from Greece’s current E110 billion bailout package.

A new bailout of around E90 billion (depending whose estimates you
choose to believe) won’t be decided until the following Eurogroup
meeting on July 11, Rehn said. With that comment, Rehn seemed to row
back from market expectations that the upcoming June Eurogroup meeting
would be the make or break moment for a new Greek bailout package.

Disbursement of the next tranche of the already-existing bailout
“means that the funding of the Greek sovereign debt can now be ensured
until September, while we take the decisions for the medium-term, beyond
September, in July,” Rehn said.

Not only is he pushing back expectations, he is also, for the first
time, asserting that the next tranche for Greece can be paid before
there is agreement on the new bailout package — a package that is now
considered indispensable, because Greece will almost certainly not
regain access to markets next year or even in 2013.

Last month, the International Monetary Fund made clear it would not
pay its E3.3 billion share of the E12 billion tranche unless there was a
“guarantee” of financing for Greece over the next 12 months – ie, before
there was a deal on a new bailout. Greece’s EMU partners could not pay
their E8.7 billion share of the tranche if the IMF failed to unblock its
share.

Rehn’s comments today are thus in stark contrast with the IMF’s
previously stated position, and it remains to be seen whether the IMF
will agree to Rehn’s position.

In his statement, Rehn seemed to tread gingerly around that issue,
saying, “I trust that we will also be able to conclude the pending
review, in agreement with the IMF.” Among other things, that comment
suggests that the quarterly review of Greece’s performance by the
so-called Troika — the European Commission, ECB and IMF — is still not
completed despite an announcement to the contrary earlier this month.

By disbursing the upcoming loan tranche to Greece and then working
out the details of the longer-term plan later, “we will avoid the
default scenario and pave the way for an agreement on the medium-term
strategy,” Rehn said.

“It has been difficult, but I strongly believe that with this
two-step approach, in agreement with IMF, we can avoid any accident
scenario.”

Greek Prime Minister George Papandreou said late Wednesday that he
would form a new government and seek an immediate vote of confidence in
Parliament, after talks for a “national unity” coalition with the
opposition New Democracy party broke down.

With Papandreou holding a tenuous 3-seat majority in parliament and
MPs of his own party threatenting to defect over the new E28 billion
austerity proposal — four having quit already — it is unclear whether
Papandreou can proceed immediately to form a new government, or even if
he’ll still have his majority in Parliament by the end of the week.

Opposition leaders are calling urgently for early elections. Were
Papandreou’s majority to vanish, he would have no choice in the matter.

Rehn’s statement today no doubt reflects concerns in the rest of
Europe that the volatile political situation in Athens could delay or
derail the passage of austerity measures considered a pre-requisite for
the new bailout.

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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