Greece under pressure

Greece has been given a month to persuade doubters that its austerity plan is sufficient to solve its debt crisis.

Greece has been given a month to persuade doubters that its austerity plan is sufficient to solve its debt crisis. EU financial ministers agreed this week that they would wait until 16 March before ordering Athens to introduce specific measures. Greece's budget deficit last year was about 13% of GDP . Athens has promised to reduce this to 8.7% this year through major cuts in public spending, but a wave of strikes has undermined faith in that pledge. Fears that Greece may default on its debt pushed the value of the euro to a nine-month low against the dollar.

Last week EU leaders said the eurozone would help Greece as a last resort, but offered no specifics. This led Greece's premier, George Papandreou, to complain that his country had become a "guinea pig in a battle between Europe and the international markets". The mood was further soured by disclosures that Greece had disguised the true size of its debt in order to meet the entry criteria for the euro in 2001

 EU leaders recognise the threat, said The Observer, but they are poorly equipped to tackle it. The eurozone's "no bail-out clause" bans rich members from helping poor ones. Although the strict observance of rules has never been a big issue for the EU, said The Daily Telegraph, the rescue of Greece would pose political difficulties, since it would have to come with strict conditions. How would Greeks feel about following an austerity package drawn up in Berlin? And how would Germans, just getting over the huge costs of reunification and facing their own recession, feel about bailing out "a basket-case economy for which most give not a fig"?

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Since the birth of the euro in 1999, doubters have argued that it made no sense, said The Washington Post. "How could one currency endure in such a diverse region especially when each constituent nation retained control over its taxing, spending and borrowing?" Now, thanks to the recession, the crisis has arrived, and there are fears it could spread. Greece may turn out to be "to heavily-indebted countries what Bear Stearns was to over-leveraged investment banks: the first domino".

There are various possible endings to this Greek drama, said Boris Johnson in The Daily Telegraph, "none of them good". The first is that Greece simply goes bust. "Athens could come Acropolis, as they say", leaving the short-sellers to move on to other vulnerable countries, notably Portugal, Italy and Spain, but also the UK . The second is that Greece slashes spending and imposes brutal tax hikes. "Would that work, or would it send the Greek economy into a further tailspin? Look at the seething mob on the streets of Athens." Alternatively, Greece could leave the euro and devalue its currency, but neither Athens nor Brussels would countenance that. So that just leaves the third, and "most likely", option: a bailout. The logical body to provide such a rescue, said Edmund Conway in the same paper, is the traditional lender of last resort: the International Monetary Fund (IMF). But Brussels is resisting an IMF bailout, seeing it as a humiliation for the euro project and "an opportunity for Washington to stick its nose into European economic management". By taking on this role itself, though, the EU would enter dangerous waters.

Greece has to show progress to fellow eurozone members in dealing with its debt by 16 March, says Lex in the FT, but the real "crunch" time will come in April, when Greece will need to raise some € 12bn on the money markets to refinance its debt.