Euro Countries Voice Doubts Over Greek Bailout

Published February 15, 2012 1:54PM (EST)

BRUSSELS (AP) — Some eurozone countries have strong doubts over whether a second massive bailout can actually save Greece, officials said Wednesday, even as Athens rushed to meet tough conditions to qualify for the euro130 billion ($170 billion) rescue.

The wrangling over Athens' aid money comes after almost two years of frantic efforts to save Greece from bankruptcy and secure its place in the 17-country currency union.

But circumstances have changed since the eurozone agreed on a first euro110 billion ($145 billion) rescue for Greece back in May 2010.

Several politicians — especially in rich euro countries like Germany, the Netherlands and Finland — have grown tired of Greece repeatedly missing budget targets and failing to implement promised spending cuts, economic reforms and sales of state assets. The measures that have been put into practice, meanwhile, have pushed the country into steep recession, with its economy shrinking 7 percent in the final quarter of 2011 from a year earlier.

At the same time, at least some policymakers are optimistic that the eurozone is now strong enough to handle a default by Greece, which is one of the smallest economies in the currency union, responsible for only about 2 percent of its economic output. Meanwhile, other lawmakers are concerned that the shockwaves of a disorderly Greek default would be felt across the rest of Europe and the world's financial markets.

"There are many in the eurozone who don't want us any more," Greece's Finance Minister Evangelos Venizelos told the country's president, Karolos Papoulias, during a meeting to inform him of the latest developments. Greece, Venizelos added, had to persuade the skeptics that the country could stay in the currency union and regain lost ground in reforming its economy.

"We are facing a situation that is particular because we are constantly being given new terms and conditions," the finance minister said.

Venizelos' negative assessment was backed by an official in Brussels.

"There is resentments, mistrust, really bitter debate," said a European official, who has been briefed on recent talks between eurozone finance chiefs. The official was speaking on condition of anonymity because of the sensitivity of the topic.

Tuesday night, a meeting between eurozone finance ministers planned for Wednesday was canceled after Athens failed to deliver in time on several demands made the previous week. The country's international creditors — the other 16 countries that use the euro and the International Monetary Fund — are insisting that the austerity measures have to be implemented before Greece can get a second, euro130 billion ($172 billion) bailout.

Eurogroup chairman Jean-Claude Juncker said he was still missing details on how to save an extra euro325 million ($428 million) as well as written assurances by the leaders of the main political parties that they will stick to a second bailout program after elections expected for April.

Wednesday afternoon, the head of Greece's Conservative party, Antonis Samaras, sent a letter to the country's international creditors committing to the terms of the second international bailout.

"We will remain committed to the program's objectives, targets and key policies," Samaras, likely Greece's next prime minister, wrote.

However, he also stated that policies might have to be modified in order to help the economy recover from the deep recession it is currently in, although he underlined these would not change the ultimate targets in reforming the economy.

Socialist party head George Papandreou sent his letter Tuesday night, officials said. They also said that the euro325 million ($428 million) in cuts should be secured by the end of the day.

But the European official briefed on recent talks said even those assurances may not be enough.

"People don't trust the Greeks and that is the main element," he said.

Adding to that are concerns that the upcoming election campaign will forcibly slow down or hinder implementation — assurances or not.

"Gaps in implementation (during elections) are real," the official said.

At their most recent get-together, last week, finance chiefs lashed out at their Greek colleague, with Finland's Finance Minister Jutta Urpilainen chewing Venizelos out in front of the cameras over a documents she said still had not been signed.

The perceived humiliation of Greece and the real human suffering brought on by four years of recession have often sparked violent protests in Athens and other Greek cities as well as growing resentment against Germany and the EU, which seen as imposing unnecessarily painful cuts.

But politicians in Athens and Brussels have warned about the negative consequences of a default.

"We do not have a choice between a pleasant or unpleasant option — but a choice that is between either unpleasant or even more unpleasant solutions," Venizelos said Wednesday.

Apart from doubts over Greece's commitment to the bailout, there are still several missing elements in the rescue package that are outside Athens' control.

When eurozone leaders in late October tentatively agreed on more aid, they pinned down key parameters: By 2020, Greece's debt has to decline to around 120 percent of economic output — the maximum they said was sustainable without outside help — from more than 160 percent currently.

Besides the euro130 billion in rescue loans, Athens was asked to negotiate a voluntary debt-relief with banks and other private investors that hold Greek government bonds. The aim of that deal is to shave some euro100 billion ($132 billion) off Greece's euro350 billion ($461 billion) debt and give Greece much more time to repay the rest of the money it owes private bondholders.

But even provided that Greece gets the bailout and the deal with bondholders works out, debt inspectors from the EU and the International Monetary Fund believe the 2020 target would still be missed. Late last month, an EU official said a gap of some euro15 billion ($19.6 billion) remained.

There are hopes that the European Central Bank, which also holds a substantial amount of Greek bonds, can help fill that gap, but so far the ECB has remained vague on whether and how it would do so.

Despite all these problems, several European officials, who also declined to be named, said Wednesday that they expected the bailout to go ahead. There are fears that an uncontrolled default could hurt other week countries like Portugal and even rock some of the big economies in Europe's core.

Instead of the Wednesday meeting, finance ministers will in the evening discuss the latest developments in Greece in a teleconference later Wednesday and meet in person in Brussels on Monday.

At that meeting, they are expected to give Greece the green light to move ahead with the bond-swap deal it has negotiated private investors.

For the bond-swap to work it has to be launched quickly, as it will take several weeks to implement and has to be finalized before March 20, when Greece faces a euro14.5 billion ($19.1 billion) bond redemption it cannot afford to pay.


Becartoros reported from Athens, Greece. Derek Gatopoulos in Athens and Caf Casert in Brussels

By Salon Staff

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