BRUSSELS, July 3, 2011 (AFP) - Europe bought time this weekend to avoid a Greek bankruptcy, but tough negotiations lie ahead to save Athens and prevent the eurozone debt crisis from descending into global drama.
Greece will be able to pay its bills this month after eurozone finance ministers cleared the way late Saturday for the next 12-billion-euro tranche of a 110-billion-euro ($160 billion) bailout granted last year by the EU and IMF.
But the ministers still need to work on a second rescue package potentially of similar size to ensure Athens can stay afloat until at least 2014, warding off a devastating default that would reverberate across Europe.
"We can't afford to relax and we need to move forward as fast as possible, both on the eurozone and IMF side," said Polish Finance Minister Jacek Rostowski, whose country chairs the rotating EU presidency but is not part of the 17-nation euro area.
European diplomats warn that eurozone finance chiefs are unlikely to finalise a second bailout at their next meeting on July 11 and that Greece may have to wait until September.
Negotiations for a new rescue are more complex because some governments, especially Germany, want private investors to share the burden by agreeing to voluntarily "roll over" their Greek debt.
The hope is that banks, insurers and pension funds will buy new Greek bonds to replace those maturing soon, but in a way that will not be interpreted as a default by credit rating agencies.
Their plan won the backing on Friday of a key global finance group, the Institute of International Finance (IIF), which represents banks, insurers and investment funds.
France, whose banks hold a sizeable proportion of Greek debt, has proposed, among other measures, that lenders roll over their loans into new 30-year bonds, giving Greece more time to put its financial house in order.
Greece is also under pressure to swiftly implement 28.4 billion euros in budget cuts and tax hikes, and a 50-billion-euro privatisation programme, that the parliament approved last week despite riots in the streets of Athens.
"The measures decided by Athens must quickly be implemented. The privatisations must for example begin immediately," said German Finance Minister Wolfgang Schaeuble, indicating that a second bailout may have to wait until late 2011.
Greek Finance Minister Evangelos Venizelos pledged that Athens would fulfill its end of the bargain.
"What is crucial now is the timely and effective implementation of the decisions taken in parliament, so we can gradually emerge from the crisis in the interest of national economy and the Greek citizens," he said.
The crisis has already spread to Ireland and Portugal, which have received their own bailouts, and other eurozone nations such as Spain and Italy are currently slashing budgets to avoid becoming the next victims.
"European policymakers' inability to deal with the crisis quickly and decisively is hitting the rest of the periphery," said the market research group Capital Economics.
With lingering doubts over whether weaker eurozone nations will be able to meet their fiscal targets, the London-based firm said the likes of Ireland and Portugal may too need new bailouts next year.
"Spain and perhaps Italy could also come under severe pressure to seek financial assistance, further adding to concerns about the future viability of the eurozone," it said.
With fears mounting that a Greek default would cause shockwaves across the global financial world, the United States has pressed European leaders to act decisively to put a lid on the crisis.
"It is our hope that European leaders continue to make sure that Europe's response to the crisis is strong, flexible and effective," US Secretary of State Hillary Clinton said during a visit to Madrid on Saturday.