The European Union says Greece has made some progress, but not enough, to merit the new bailout it desperately needs to avoid default and keep the euro as its currency.
Greeks are increasingly bitter about the austerity measures the EU is imposing on them. And Greece’s EU partners are losing trust that the Greeks will implement them.
Now, talk is growing about contingency planning if Greece fails to meet the bailout conditions and defaults.
On Wednesday, the European Union finally received assurances from Greek opposition leader Antonis Samaras that he would stick with the painful reform plan, even after elections in April.
Samaras had suggested he would try to renegotiate the austerity measures if he becomes prime minister. His signature on the plan was one key demand eurozone leaders made for giving Greece 130 billion euros in rescue money on top of the billions it got in the first bailout. But other important demands are not yet resolved.
Promises Alone Not Enough Anymore
Dutch Finance Minister Jan Kees de Jager tells NPR that his patience has run out, and that he wants more from Greece, on top of legislation Athens passed on Sunday.
“We have to see the evidence of implementing the measures into law, and just promises are not enough, not anymore,” de Jager says. “We do want to see more guarantees in place, in law, some of the measures to implement in the next two weeks, before we can give a final yes to the package.”
The Netherlands and Germany — two of the richer, AAA-rated eurozone countries — seem close to the breaking point with Greece. De Jager says that so far during this two-year crisis, the Greek government has failed to sell enough state assets, failed to collect enough taxes, failed to meet budget targets and balked at promised spending cuts.
Now, de Jager says they want to know if the numbers add up, given Greece’s shrinking economy.
“If we do not see a full, credible package with a debt-sustainability analysis, then we — certainly not I — can make any final decision on Greece,” he says. “We need it in writing. We have to see the evidence that the economics will work, that all the measures will result in a sustainable solution for Greece.”
De Jager and his fellow Euro Group finance ministers cancelled face-to-face talks Wednesday in favor of a conference call because Greece failed to clarify how it plans to close a huge budget gap this year. Finance ministers are scheduled to meet in Brussels next Monday, which has become Greece’s latest de facto deadline.
Planning For The Possibility Of A Greek Exit
In a related development, concern is growing that not enough private-sector Greek bond holders will sign off on a debt swap that could see them lose up to 70 percent of their investment. About one-quarter of the 130 billion euro bailout is reportedly made up of incentives or “sweeteners” to be paid to private-sector investors to encourage them to take part.
De Jager says the goal is still to do everything possible to keep Greece in the currency union. But there is more serious talk now about a Greek exit from the eurozone.
Finance attorney Charles Proctor, who has advised clients on what might happen if a country abandoned the euro, says companies and countries are quietly preparing for the worst.
“Whatever is said for public consumption, I think in private preparations will have been made,” he says.
“The bank regulator in the UK, the Financial Services Authority, has told banks that it ought to look at the collapse of the euro as part of their contingency planning to ensure that they’re able to absorb the risks which exist in their book.”
No one wants a messy default with a run on Greek banks, more street violence and economic hardship for Greeks. No one wants deep losses for European and some American banks, either. Proctor notes there is no mechanism for a country to leave the eurozone.
“We would be going into a legal black hole. They would have to close down the country, they would have to impose capital controls, they would have to prevent financial transfers,” he says. “So it would be very radical and it would have to be achieved very quickly.”
Although the risk of chaos is huge, senior EU officials — including de Jager, the Dutch finance minister — are trying to reassure the public and investors that the EU is now strong enough to handle a messy Greek default.
Since the crisis began two years ago, de Jager says, the EU has moved to recapitalize European banks, impose stronger budget rules and made other reforms. These efforts, he says, decrease the level of contagion if anything happens to Greece.