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Euro countries voice doubts over Greek bailout

- Associated Press - Wednesday, February 15, 2012

BRUSSELS (AP) — Some eurozone countries have strong doubts over whether a second massive bailout can save Greece, officials said Wednesday, even as Athens rushed to meet tough conditions to qualify for the 130-billion-euro ($170 billion) rescue.

The wrangling over Athens' aid money comes after almost two years of frantic efforts to save Greece from bankruptcy and secure its place in the 17-country currency union.

But circumstances have changed since the eurozone agreed on a first 110-billion-euro ($145 billion) rescue for Greece in May 2010.

Several politicians — especially in rich euro countries such as Germany, the Netherlands and Finland — have grown tired of Greece's repeatedly missing budget targets and failing to implement promised spending cuts, economic reforms and sales of state assets. The measures that have been put into practice, meanwhile, have pushed the country into steep recession, with its economy shrinking 7 percent in the final quarter of 2011 from a year earlier.

At the same time, at least some policymakers are optimistic that the eurozone is now strong enough to handle a default by Greece, which is one of the smallest economies in the currency union, responsible for only about 2 percent of its economic output. Meanwhile, other lawmakers are concerned that the shockwaves of a disorderly Greek default would be felt across the rest of Europe and the world's financial markets.

"There are many in the eurozone who don't want us any more," Greek Finance Minister Evangelos Venizelos told the country's president, Karolos Papoulias, during a meeting to inform him of the latest developments. Greece, Mr. Venizelos added, had to persuade the skeptics that the country could stay in the currency union and regain lost ground in reforming its economy.

"We are facing a situation that is particular because we are constantly being given new terms and conditions," the finance minister said.

Mr. Venizelos' negative assessment was backed by an official in Brussels.

"There is resentments, mistrust, really bitter debate," said a European official, who has been briefed on recent talks between eurozone finance chiefs. The official was speaking on condition of anonymity because of the sensitivity of the topic.

Tuesday night, a meeting between eurozone finance ministers planned for Wednesday was canceled after Athens failed to deliver in time on several demands made the previous week. The country's international creditors — the other 16 countries that use the euro and the International Monetary Fund — are insisting that the austerity measures have to be implemented before Greece can get a second, 130-billion-euro ($172 billion) bailout.

Eurogroup Chairman Jean-Claude Juncker said he still was missing details on how to save an extra 325 million euros ($428 million) as well as written assurances by the leaders of the main political parties that they will stick to a second bailout program after elections expected in April.

Wednesday afternoon, the head of Greece's Conservative party, Antonis Samaras, sent a letter to the country's international creditors committing to the terms of the second international bailout.

"We will remain committed to the program's objectives, targets and key policies," Mr. Samaras, likely Greece's next prime minister, wrote.

However, he also stated that policies might have to be modified in order to help the economy recover from the deep recession it is currently in, although he underlined these would not change the ultimate targets in reforming the economy.

Socialist party head George Papandreou sent his letter Tuesday night, officials said. They also said that the 325 million euros ($428 million) in cuts should be secured by the end of the day.

But the European official briefed on recent talks said even those assurances may not be enough.

"People don't trust the Greeks, and that is the main element," he said.

Adding to that are concerns that the upcoming election campaign will forcibly slow down or hinder implementation — assurances or not.

"Gaps in implementation (during elections) are real," the official said.

At their most recent get-together last week, finance chiefs lashed out at their Greek colleague, with Finland's Finance Minister Jutta Urpilainen chewing out Mr. Venizelos in front of the cameras over a documents she said still had not been signed.

The perceived humiliation of Greece and the real human suffering brought on by four years of recession often have sparked violent protests in Athens and other Greek cities as well as growing resentment against Germany and the European Union, which are seen as imposing unnecessarily painful cuts.

But politicians in Athens and Brussels have warned about the negative consequences of a default.

"We do not have a choice between a pleasant or unpleasant option — but a choice that is between either unpleasant or even more unpleasant solutions," Mr. Venizelos said Wednesday.

Apart from doubts over Greece's commitment to the bailout, still missing are several elements in the rescue package that are outside Athens' control.

When eurozone leaders in late October tentatively agreed on more aid, they pinned down key parameters: By 2020, Greece's debt has to decline to around 120 percent of economic output — the maximum they said was sustainable without outside help — from more than 160 percent currently.

Besides the 130 billion euros in rescue loans, Athens was asked to negotiate a voluntary debt relief with banks and other private investors that hold Greek government bonds. The aim of that deal is to shave some 100 billion euros ($132 billion) off Greece's 350-billion-euro ($461 billion) debt and give Greece much more time to repay the rest of the money it owes private bondholders.

But even provided that Greece gets the bailout and the deal with bondholders works out, debt inspectors from the EU and the IMF believe the 2020 target still would be missed. Late last month, an EU official said a gap of some 15 billion euros ($19.6 billion) remained.

There are hopes that the European Central Bank, which also holds a substantial amount in Greek bonds, can help fill that gap, but so far, the ECB has remained vague on whether and how it would do so.

Despite all these problems, several European officials, who also declined to be named, said Wednesday that they expected the bailout to go ahead. There are fears that an uncontrolled default could hurt other weak countries such as Portugal and even rock some of the big economies in Europe's core.

Instead of the Wednesday meeting, finance ministers will discuss the latest developments in Greece in a teleconference later Wednesday and meet in person in Brussels on Monday.

At that meeting, they are expected to give Greece the green light to move ahead with the bond-swap deal it has negotiated with private investors.

For the bond-swap to work, it has to be launched quickly, as it will take several weeks to implement and has to be finalized before March 20, when Greece faces a 14.5-billion-euro ($19.1 billion) bond redemption it cannot afford to pay.

Elena Becartoros reported from Athens. Derek Gatopoulos in Athens and Caf Casert in Brussels contributed to this article.

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