Some Eurozone countries doubt Greek bailout will work

There are strong doubts among some of the countries that use the euro 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 €130 billion ($170B US) rescue.

EU finance ministers postpone key meeting, Europe heads toward recession

A man waits at a hall in the Athens Stock Exchange Wednesday as the world waits for eurozone finance ministers to meet on Greece's new international bailout. (John Kolesidis/Reuters)

There are strong doubts among some of the countries that use the euro 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 €130 billion ($170 billion US) 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 €110 billion ($144.86 billion US) 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 per cent 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 per cent 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.

'Resentment' towards Greece

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 cancelled 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, €130 billion bailout.   

Eurogroup chairman Jean-Claude Juncker said he was still missing details on how to save an extra €325 million ($428 million US) 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.

Committing to the bailout terms

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 €325 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.

Lashing out against Greece

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 sparked sometimes 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.   

Missing elements in rescue package

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 per cent of economic output — the maximum they said was sustainable without outside help — from more than 160 per cent currently.   

Besides the €130 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 €100 billion ($131 billion) off Greece's €350 billion ($461 billion) debt and give Greece much more time to repay the rest of the money it owes private bondholders.

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 weak 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 at 1600 GMT 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 €14.5 billion ($19.1 billion) bond redemption it cannot afford to pay.

Heading for recession

Meanwhile, the 17-nation eurozone has one foot in recession, according to official figures showing the economy contracted 0.3 per cent in the final three months of 2011 — a clear sign that Europe's debt crisis has spared no country in the single currency bloc.

The decline was the first since the second quarter of 2009 and followed a meagre 0.1 per cent increase in the previous three-month period, Eurostat, the EU's statistics agency, said Wednesday.

With files from CBC News