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Eurozone Debt Crisis: Greek Debt Talks Postponed Again, Fears of Greek Default Swell

Posted on the 06 February 2012 by Periscope
Eurozone debt crisis: Greek debt talks postponed again, fears of Greek default swell

Angela Merkel (centre) and Nicolas Sarkozy (right). Photocredit: European Council http://www.flickr.com/photos/europeancouncil_meetings/5865957304/

Greece’s political leaders have delayed their decision on accepting the terms of the new EU/IMF bailout for yet another day. The three parties in the Greek coalition government, who have been arguing for weeks over another wave of austerity in return for the 130 billion euro bailout, were unable to come to a decision yesterday despite knocking their heads together for five hours and postponed today’s decision until Tuesday.  The further delay has deeply frustrated German Chancellor Angela Merkel and deepened concerns that Greece might default, an event that would further rock the shaky eurozone.

Speaking in Paris, Merkel expressed the exasperation at seemingly endless wrangling in Athens that has yet to produce a definitive acceptance of the austerity and reform conditions demanded by the lenders. “I honestly can’t understand how additional days will help. Time is of the essence. A lot is at stake for the entire euro zone,” she told a news conference with President Nicolas Sarkozy.

“We want Greece to stay in the euro,” said Merkel. But she added: “I want to make clear once again that there can be no deal if the troika proposals are not implemented. They are on the table … Something needs to happen quickly.”

Greece is facing 14.5 billion euros of debt repayments in March, a bill it cannot meet without further bailout funds, so “the stakes could not be higher” noted Reuters.

Domestic politics at play? Lefteris Papadimas and Daniel Flynn of Reuters drilled down in to the reasons for the delay and suggested that Greek politicians might be delaying so as to curry a little favour with voters who are sick and tired of austerity measures: “The party leaders, positioning themselves for a likely general election in April, have baulked at accepting another package of deeply unpopular wage and pension reductions, job cuts and tougher tax enforcement measures.” The news agency reported that some left-leaning political parties are simply flat-out opposed to accepting more austerity pain: “New Democracy and LAOS in particular have staunchly opposed further wage and spending cuts, arguing they risk precipitating an even deeper recession and imposing more pain on Greeks.”

Unpalatable austerities. The BBC said that disagreements over the size of job cuts, cuts to the minimum wage, pension cuts and the ending of a so-called 13th or 14th month’s pay as a holiday bonus are proving to be the big stumbling blocks. The BBC reported that anti-austerity protests are expected to take place on Monday evening and that the two largest unions have called for a day-long strike on Tuesday.

Euro sliding. At 1600 GMT on Monday, The Wall Street Journal detailed how the postponement is impacting on the currency markets. The  newspaper reported that the U.S. dollar rose, while the euro fell for a third day “as Greece struggled against the clock to cut a deal with its international creditors for a second bailout seen as essential to averting a messy default.”  In recent trade, the newspaper reported, the euro was at $1.3075 compared with $1.3159 late Friday. Looking forward, currency specialists polled by the WSJ painted a pretty gloomy picture: Even “if a deal is reached, we think it will likely be the high point in terms of good news in the euro-zone debt crisis,” said Brian Dolan, chief currency strategist at Forex.com. “Markets are likely to conclude that even with a deal, Greek debt levels are still unsustainable in the long run.”

More on the economy

  • RBS boss Hester turns down massive bonus
  • Eurozone debt crisis continues to deepen
  • Will David Cameron really legislate on fat cat pay?
  • Is the UK economy doomed?

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