Greece fails to agree rescue pact as EU insists austerity is only answer

THE EU has insisted that austerity should be the basis of Greece’s economic revival as the beleaguered country’s struggle to form a unity government continues.

Eurozone finance ministers meeting in Brussels had one eye on Athens, where talks were being held between political parties to stitch together an emergency administration to run the country.

The European Commission warned that any Greek administration would have to honour the austerity policy agreed as part of multibillion-pound EU-IMF bailout packages to keep Greece afloat.

The uncertainty hit markets, with nervous traders wiping £28.5 billion from the value of London’s leading shares index.

Today will see a final push for a political deal in Athens after an election which gave no party an overall majority.

Greece’s president is to hold a broader meeting with the heads of several political parties today in a final push to find agreement on forming a government.

The country is struggling to form a unity government as EU countries insisted austerity remained the basis of Greece’s economic revival.

The leaders of the centre-right New Democracy, Pasok and moderate Democratic Left parties arrived at the presidential palace shortly yesterday evening for talks but left an hour later. If no deal can be reached, elections must be called for next month.

The prospect of another election increases the likelihood of the Greek public rejecting the austerity package which has severely hit jobs and incomes.

But the European Commission has insisted the austerity plan remains the best option.

A spokesman said: “This is the best thing for Greece, for the Greek people and for Europe as a whole.

“Nothing has changed in our position – we want Greece to stay in the euro, we think the Greek [austerity] programme is the best course for Greece and, while we respect the on-going efforts in Greece [to form a government] we say that Greece must honour its [austerity] commitments.”

The Spanish government, struggling with its own economic crisis and likely to need a massive EU bailout, urged Greek politicians to resolve their differences and stick to the austerity path to avoid further economic “contagion”.

The scale of the crisis raises the real prospect of Greece leaving the eurozone – possibly with further bailouts for Athens involving all 27 member states.

Downing Street insisted any funding to stabilise Greece during the process of leaving the eurozone should be for the eurozone countries alone – just like bailouts for those inside the single currency bloc.

Deputy Prime Minister Nick Clegg warned eurosceptics against gloating over the plight of the euro.

He said: “We as a country depend massively on the prosperity of the eurozone for our own prosperity, which is why I can never understand people who engage in Schadenfreude – handwringing satisfaction that things are going wrong in the euro.”