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Greece rescue at crossroads as debt cut shortfall grows
Roddy Thomson February 17, 2012
A massive rescue package for Greece faced a substantial rewrite on Thursday after officials revealed that Athens would miss its debt targets and divisions deepened over its future in the eurozone.
"We're back to square one," Dutch Finance Minister Jan Kees de Jager told a parliamentary committee hearing in The Hague. "Greece is in a much worse state than had been anticipated" when a 230-billion-euro ($US300 billion) second bailout was first agreed in October.
As the eurozone tightens the screws to monitor every detail of a debt rescue package after losing patience over unkept promises from Athens, a number of governments want watertight commitments from Greece's entire political spectrum that austerity and reforms will be carried out even after April elections.
De Jager said Greece, struggling with a 350-billion ($US457 billion) euro debt mountain, still had not taken all the measures required to seal the deal which is vital if the country is to stave off bankruptcy.
"We will approve it only if all the necessary measures are taken," he warned.
Athens faces a bigger funding shortfall than first thought, with officials confirming that the long-disputed aid would not be enough to bring Greek debt down to an agreed target of 120 per cent of output by 2020, from 160 per cent of GDP now.
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With the clock running down, the euro edged down against the dollar for a fifth straight day, and stocks again slid.
"The level of indebtedness has been calculated at 129 per cent" of output, said one official from a eurozone government, indicating a 5.5-billion-euro gap if the overall sums are to remain on track.
The 129 per cent figure must fall to "within a couple of per centage points" of the original target before his government would sign off the overall bailout, said another official from another state in the 17-member eurozone.
The upshot is that when the Eurogroup of finance ministers meet in Brussels on Monday, they now plan to issue an initial green light for the launch of an offer to private investors to agree a complicated write-down.
This is aimed at chopping 100 billion euros off Greece's total 350-billion euro debt to avoid a messy default on March 20, when 14.5 billion euros must be repaid to bondholders.
The idea is to maintain Greece on the equivalent of a drip-feed while more radical changes are enacted, centred on strict day-to-day surveillance of the government's income and expenditure.
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That means a decision only in principle to proceed with work on fresh government loans worth 130 billion euros, 30 billion of which are needed to stabilise Greek banks brought to their knees by trading in bad debt.
"We are not in a dictatorial monetary union," said Luxembourg Finance Minister Luc Frieden, noting that "a state is free to choose to leave".
However, he underlined: "If a member state says, 'we prefer not to take money from other states and return to a national currency without making structural reforms,' then that state has chosen to exclude itself."
The focus now falls on how to secure fresh assurances from minor political leaders in Greece.
Prime Minister Lucas Papademos was meeting Thursday with his political allies, the socialist and conservative party leaders, his office said, ahead of a cabinet meeting on Friday.
Germany and the Netherlands, which both have to get any fresh aid to Greece past their own sceptical national parliaments, have lost faith in the Greek political system.
"We need more signatures from more Greek leaders, not just the two," said one official after the Eurogroup received pledges from the main Conservative and Socialist groupings in the current caretaker coalition.
"We don't know if either can get a majority in the elections, so what if others hold the balance of power?" he said.
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