A meeting of the finance chiefs of the 17 euro countries to discuss Greece’s second multibillion bailout planned for today was called off Tuesday evening after Athens failed to deliver in time on several demands made by its partners in the currency union.
The last-minute cancellation of the meeting shows the eurozone wants much tougher guarantees now from Athens before giving it an extra (euro) 130 billion ($171 billion) in rescue loans, on top of (euro) 110 billion ($145 billion) granted in 2010, raising fears that the complex deal could still fall apart.
Wednesday’s meeting was expected to give the green light for a bond-swap deal with private creditors designed to slice some (euro) 100 billion off Greece’s debt. The swap deal, which will take several weeks to implement, has to be finalized by March 20, when Greece faces a (euro) 14.5 billion bond redemption that it cannot pay.
Tensions between Athens and other European capitals have hit new highs this week. Although the European Union is officially still warning of the far-reaching dangers of a disorderly default by Greece, some politicians have in recent weeks downplayed the effects of such an event.
Athens and the eurozone have spent much of the past two years working to avoid a default, but the measures demanded in return for the second bailout cut to the bone of Greek society and the Greek state, making it difficult it to see how the country can restore growth.
“Greece has made all the efforts that it needed to do, and the people cannot take any more,” Greece’s Public Order Minister Christos Papoutsis said after a Cabinet meeting. “The government is making superhuman efforts and we have reached the limits of the social and economic system. From now on, Europe has to take the responsibility.”
But politicians are struggling under the weight of having to make decisions that will affect generations to come.
“It has appeared that further technical work between Greece and the troika is needed in a number of areas,” Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the meetings of eurozone finance ministers, said in a statement calling off Wednesday’s meeting. An upcoming report by Greece’s international debt inspectors from the European Commission, European Central Bank and International Monetary Fund — known as the “troika” — will be key to determining whether measures by Greece and the rest of Europe will suffice to allow it to carry its debts and get further aid.
While the Parliament in Athens faced down violent protests over the weekend to approve a far-reaching new austerity package, the cabinet of ministers spent hours Tuesday discussing how to save an extra (euro) 325 million demanded last week by the eurozone.
The other finance ministers also want assurances from the leaders of Greece’s two main political parties that they will implement the promised spending cuts and reforms after national elections expected for April. That demand is especially tenuous, with some commentators questioning whether it undermines democracy in Greece.
A Greek government official said later Tuesday that letters from the party leaders promising implementation of the measures would be ready by Wednesday morning. He added the final details for saving (euro) 325 million will also be decided Wednesday, after suggestions have been discussed with debt inspectors from the EU and the International Monetary Fund. The official declined to be named in line with ministry rules.
But Juncker said neither of these demands had been met in time for the finance ministers’ meeting to go ahead. Instead, the ministers will speak in a teleconference on Wednesday and plan to meet in person on Monday in Brussels.
After keeping Greece alive through bailout loans for almost two years — and seeing the country repeatedly miss its targets — some of the richer euro countries like the Netherlands or Germany are reluctant to commit new money without firm assurances.
Many analysts also doubt whether the economic reforms that are part of the bailout program can really restore a country that is facing a fifth year of recession in 2012, and whose economy shrank a massive 7 percent in the fourth quarter of 2011 compared with a year earlier.
In a TV interview Monday night, German Finance Minister Wolfgang Schaeuble stressed that Europe was doing everything to help Greece to avoid bankruptcy, “but Greece itself of course must want that.”
If Greece were to default on its debt, Europe “is better prepared now than two years ago,” Schaeuble told German public broadcaster ZDF.
Other officials, however, are still warning that a default could have unexpected consequences for the rest of Europe and the world economy.
“Right now, practically all the pieces are in place (for a bailout deal),” Angel Gurria, the head of the Organization for Economic Cooperation and Development said Tuesday. But if it unravels, “although we are better off today than we were two years ago for that kind of scenario, we really don’t know which unexpected consequences may happen.”
He said that squabbling among policymakers was creating unnecessary harm to broader financial sentiment.
“Don’t allow any holdout to blackmail the world economy to continue paying a very high price for the uncertainty.”
In addition to the assurances of party leaders and the demand for (euro) 325 million in savings, the eurozone and the IMF also want Greece to actually implement (euro) 2.6 billion ($3.45 billion) of the promised spending cuts and reforms before the bailout money can be released, according to a draft document obtained by The Associated Press on Tuesday.
The measures — which range from getting tougher with tax evaders to cutting prescription drug budgets — are part of the large austerity package that the Parliament in Athens passed over the weekend.
But even in Germany, traditionally one of strictest countries when it comes to Greek budget cuts, some lawmakers are having doubts whether the bailout program will actually work.
“We have to be honest. Greece will need our support for many years, for at least a decade, financially and administratively,” Priska Hinz, the opposition Green Party’s top member on the Budget Committee, warned.
Europe must also push ahead with measures to spur growth in Greece, Hinz said. “People need to see light at the end of the tunnel.”