Euro crisis: Losing patience with Greece

  • 15 February 2012
  • From the section Europe
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Greek PM Lucas Papademos on TV, 11 Feb 12
Image caption Greek PM Papademos was not elected and faces a wave of social unrest

Something has snapped. No longer are Europe's leaders pledging to save Greece at all costs.

Officials are now saying publicly what was only whispered a short time back - that it might be better for Greece to default and exit the eurozone.

Patience has run out. At the highest levels of government in Germany, the Netherlands, Finland and Austria the attitude towards Greece is one of scepticism. They don't believe the politicians in Athens can deliver anymore.

They have not given up on securing a second bailout deal for Greece, but they are much more willing to contemplate a Greek default.

The truth is that EU officials and European ministers have been burnt before. It is not just that the accounts were faked in 2009. It is that so few of the conditions that came with the first bailout in May 2010 have been fulfilled.

Greece was supposed to slash the numbers of workers in the public sector. Up until the middle of last year they were still hiring.

There was a promise to raise 50bn euros (£42bn; $66bn) from privatisation. They just might raise 1.5bn euros from a telecom sale. Beyond that - as one official told me in Athens - the pledges were a "work of fiction".

There was also a promise to cut down on tax evasion. Little has changed. There is still an estimated 60bn euros of uncollected taxes owing.

New demands

So this time around the EU and the IMF have sought guarantees and evidence that measures are being implemented. They have also sought written undertakings from the major politicians that after the expected elections in April there will be no backsliding.

The conservative leader, Antonis Samaras, has been resisting, although his office says that he will send a letter within a day. Some leaders in Greece complain that it is undermining of democracy to bind politicians before an election.

The German Finance Minister, Wolfgang Schaeuble, was again today expressing concern about who will guarantee that Greece sticks to its agreements.

"When you look at the internal political discussions in Greece," he said, "and the opinion polls, then you have to ask who will really guarantee after the elections - and I find this very alarming - that Greece continues to stand by what we are now agreeing with Greece".

This mistrust has evolved into a re-examination of the consequences of a Greek default. Mr Schaeuble said the EU was much better prepared to survive a Greek default than two years ago.

A former German Finance Minister, Peer Steinbrueck, seemed to accept what was coming when he said in Washington that 'let's hope Europe is prepared for a Greek bankruptcy'. The truth is that Europe has a much larger firefighting fund to prevent contagion in the event of Greece leaving the single currency than it did in 2010.

The sight of resistance on the streets of Athens, the shrinking economy - down 7% in the last quarter of 2011 - all feed into the belief that Greece is a lost cause.

So EU officials are taking a hard line. They want the guarantees. They want further budget savings of 325m euros. They want to see the evidence that the cuts are being implemented.

The speculation in the Greek papers is that the savings will come from a further reduction in salaries of government workers, including military personnel and the police.

But some Greek ministers are sending another message: that Greece cannot take any more pain. The Greek Public Order Minister, Christos Papoutsis, says the country's economic and social system is exhausted.

The income of many public sector workers is down 20%. Unemployment is at 19%. Thousands of businesses have gone under. The economy is caught in a downward spiral which will only intensify with the new cuts.

I still think - on balance - that a deal will be done and that Greece will receive one of the largest bailouts in history.

Certainly Chancellor Merkel still believes the dangers of a Greek default outweigh letting the country go. But the mood amongst Europe's officials is changing.

The future of Greece is on a knife edge.