Eurozone keeps heat on Greece, holds back aid

Eurozone finance ministers regroup Monday to pressure Greece to unite behind reforms in return for aid vital to its survival, and boost the firepower of a bailout fund to protect Italy. As Greek Prime Minister George Papandreou struggles to form a coalition government, the eurozone is holding back the next slice of aid, eight billion euros ($11 billion), until rival parties back a new eurozone rescue package. The ministers meet after a turbulent few days during which Papandreou barely survived a confidence vote in Athens and angered his European partners with a now defunct bid to hold a referendum on the bailout deal. The drama in Athens broke a taboo as European leaders lost their patience, telling Papandreou his country must choose between leaving or staying in the eurozone. The political brinkmanship overshadowed a G20 summit in Cannes, France, at which world leaders failed to garner international aid for Europe while Italy accepted the embarrassment of being put under IMF supervision. EU president Herman Van Rompuy said Greece had made "enormous efforts" so far, "but for us to continue to show our solidarity through financial aid, the parliament must approve the new plan" agreed at a eurozone summit last month. He urged Greece, after the G20 summit on Friday, to "rapidly recreate a climate of political stability." "We call on all political forces to contribute to finding a national consensus because the stakes are fundamental and existential for Greece," Van Rompuy said. But the Greek conservative opposition resisted efforts Saturday by Papandreou, a Socialist, to form a unity government he warned was vital to keep the country in the 17-nation eurozone. The eurozone finance ministers "will certainly reiterate their desire to see all the main parties subscribe to the adjustment programme," said a European government source. The ministers had agreed two weeks ago to release eight billion euros in loans, part of a 110-billion-euro bailout from last May. Greek Finance Minister Evangelos Venizelos says the aid is needed by December 15. But the installment is now frozen until Athens endorses a new rescue package that was approved at a summit on October 27 and is worth 230 billion euros in new loans and voluntary debt reductions by private lenders. The spotlight is also on Italy after Prime Minister Silvio Berlusconi accepted to have IMF officials join the European Commission in overseeing the country's implementation of measures needed to reassure nervous markets. Italy, the eurozone's third economy, has worried European leaders as its borrowing costs have soared over six percent, near levels that forced Greece, Ireland and Portugal to take EU-IMF bailouts. "We expect the Italians to live up to their word with concrete actions," the European government source said, amid pressure on Berlusconi to take steps to reduce Italy's 1.9-trillion-euro debt. At a summit last month, eurozone leaders agreed to boost their bailout fund by "leveraging" its capacity to one trillion euros, via a debt insurance scheme and an investment vehicle to attract foreign investors. The eurozone is hoping that emerging powers such as China and Brazil will come to its rescue, possibly through the IMF. While the G20 summit agreed in principle to increase IMF funding, the leaders failed to come up with any precise figure or timetable, kicking the issue down the road. "Politically and economically there was little that the G20 could have done to support the eurozone," said Sony Kapoor, head of economics think tank Re-Define, noting that emerging powers have poverty to deal with at home. "The euro area's problems are entirely self-inflicted and will need to be solved from within."