Euro crisis: Losing patience with Greece

Greek PM Lucas Papademos on TV, 11 Feb 12 Image copyright AFP
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.

Athens and EU flag What went wrong in Greece?

What went wrong in Greece?

An old drachma note and a euro note
Greece's economic reforms, which led to it abandoning the drachma as its currency in favour of the euro in 2002, made it easier for the country to borrow money.

What went wrong in Greece?

The opening ceremony at the Athens Olympics
Greece went on a big, debt-funded spending spree, including paying for high-profile projects such as the 2004 Athens Olympics, which went well over its budget.

What went wrong in Greece?

A defunct restaurant for sale in central Athens
The country was hit by the downturn, which meant it had to spend more on benefits and received less in taxes. There were also doubts about the accuracy of its economic statistics.

What went wrong in Greece?

A man with a bag of coins walks past the headquarters of the Bank of Greece
Greece's economic problems meant lenders started charging higher interest rates to lend it money. Widespread tax evasion also hit the government's coffers.

What went wrong in Greece?

Workers in a rally led by the PAME union in Athens on 22 April 2010
There have been demonstrations against the government's austerity measures to deal with its debt, such as cuts to public sector pay and pensions, reduced benefits and increased taxes.

What went wrong in Greece?

Greece's problems have made investors nervous, which has made it more expensive for other European countries such as Portugal to borrow money.
Eurozone leaders are worried that if Greece were to default, and even leave the euro, it would cause a major financial crisis that could spread to much bigger economies such as Italy and Spain.

What went wrong in Greece?

Greek Prime Minister George Papandreou at an EU summit in Brussels on 26 March 2010
In 2010, the EU, IMF and ECB agreed a bailout worth 110bn euros (£92bn; $145bn) for Greece. Prime Minister George Papandreou quit the following year while negotiating its follow-up.

What went wrong in Greece?

Lucas Papademos
Lucas Papademos, who succeeded Mr Papandreou, has negotiated a second bailout of 130bn euros, plus a debt writedown of 107bn euros. The price: increased austerity and eurozone monitoring.

What went wrong in Greece?

In May 2012 elections a majority of voters backed parties opposed to austerity, but no group won an overall majority resulting in political deadlock. Fresh elections have been called in June.
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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.