Tensions rise as Greek bailout drama continues
Feb. 16, 2012, 7:36 a.m. EST
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The fate of a second Greek bailout remained unclear Thursday, while tensions between Greece and its European partners remained high after euro-zone officials continued to question the commitment of the country’s political leaders to austerity measures.
Officials also continue to weigh delaying the release of part of the 130 billion euro ($169 billion) bailout until after the country’s widely expected April elections, reports said.
Although euro-zone officials are said to be looking at ways to ensure that Greece doesn’t default on a €14.5 billion bond repayment on March 20, fears of a delay served to knock down European equities and push the euro back below the $1.30 level versus the dollar, strategists said.
The euro EURUSD -0.38% traded at $1.2998 in recent action, down 0.4% from Tuesday.
European officials “seem to face the unenviable choice as to whether to sign up to a bailout package in which they have little faith or force Greece into a risky default. ... Europe seems perilously close to the decision to take a Lehmanesque step into a decidedly uncertain future,” said James Nixon, European economist at Societe Generale.
A teleconference by euro-zone finance ministers late Wednesday saw Luxembourg Prime Minister Jean-Claude Juncker acknowledge that Greece had met preconditions set by European officials for the 130 billion euro bailout.
He said, however, that further considerations “are necessary regarding the specific mechanisms to strengthen the surveillance of program implementation and to ensure that priority is given to debt servicing.” He said a decision on the bailout would likely come at a Monday meeting of finance ministers in Brussels.
Troika presence?
News reports said European officials may demand that Greece’s troika of international lenders — the European Union, International Monetary Fund and European Central Bank — maintain a permanent presence in Athens.
Although Greek elections are widely expected in April, European officials have also raised the prospect of a technocratic government along the lines of Italy, with non-politicians in key cabinet roles.
The current interim government of technocratic Prime Minister Lucas Papademos, a former central banker, is filled by members of Greece’s socialist Pasok and conservative New Democracy parties.
Dutch Finance Minister Jan Kees de Jager, in an interview published in a Dutch newspaper Thursday, confirmed that euro-zone officials have weighed the prospect of holding off on delivering a Greek bailout until after the April elections, Dow Jones Newswires reported.
News reports on Wednesday said some euro-zone countries, including Germany, the Netherlands and Finland, were pushing for a delay in distributing part of Greece’s bailout while taking steps to ensure the country averts a default on March 20.
De Jager also suggested Greece could follow Italy’s path in appointing a technocratic government tasked with implementing budget cuts and reforms. “But this is all speculation,” he said. “In this option, you shouldn’t have elections in the short term.”
Tensions flare
Tensions were on display Wednesday. German Finance Minister Wolfgang Schaeuble on Wednesday questioned Greek leaders’ commitment to austerity measures and economic reforms demanded by European leaders as a prerequisite for the second bailout.
“When you look at the internal political discussions in Greece and the opinion polls, then you have to ask who will really guarantee after the elections that Greece continues to stand by what we are now agreeing with Greece,” said Schaeuble. He also warned Greece against turning into a “bottomless pit” for aid payments.
That prompted a rebuke by Greek President Karolos Papoulias later Wednesday.
“I don’t accept insults to my country by Mr. Schaeuble. I don’t accept it as a Greek. Who is Mr. Schaeuble to ridicule Greece? Who are the Dutch? Who are the Finns? We always had the pride to defend not just our own freedom, not just our own country, but the freedom of all Europe,” Papoulias, who fought in the Greek resistance against Nazi occupiers in World War II, was quoted as saying.
Greek Finance Minister Evangelos Venizelos on Wednesday accused the country’s euro-zone partners of changing prerequisites for the bailout in an effort to drum the country out of the euro.
“There are many in the euro zone who don’t want us any more,” he said, according to news reports. “We are constantly being given new terms and conditions.”
Protests in Greece
Michael Hewson, senior market analyst at CMC Markets in London, said reports of fresh demands have raised questions in investors’ minds about Europe’s commitment to keeping Greece in the euro zone.
“These conditions give the impression, wrongly or otherwise, that EU officials are trying to force Greece out by putting conditions in place that they know the Greeks would never agree to,” he said.
Meanwhile, the heated rhetoric between Athens and its partners marks an intensification of tensions that have been simmering since the Greek debt crisis began two years ago. Protesters outside the Greek parliament last week burned a German flag, while a right-wing Greek newspaper depicted German Chancellor Angela Merkel wearing a uniform and Nazi armband.
Some strategists, however, contend that speculation about possible delays and fresh demands likely won’t derail a deal.
“The only reality is there is a Eurogroup meeting on Monday, and the baseline [expectation] remains that a final deal will likely be struck,” said Padhraic Garvey, economist at ING Bank in Amsterdam.
