Greece Struggles to Overcome Mistrust

Greece Struggles to Overcome Mistrust

By STEPHEN CASTLE










BRUSSELS — At the same meeting where Greece’s latest economic plans were greeted with blunt skepticism, a television microphone accidentally recorded a very different exchange between a minister from Germany and a colleague from another bailout recipient, Portugal.

If Lisbon, which faces an austerity-driven economic slump similar to Greece’s, needed to ease its bailout terms, “we would be ready to do it,” said the German finance minister, Wolfgang Schäuble.

“That’s much appreciated,” replied his counterpart from Portugal, Vitor Gaspar.

The conversation, broadcast on the private Portuguese network TVI, illustrated a stark fact as the euro zone’s debt crisis enters its third year: While Portugal, Ireland and other countries may be struggling, Greece has found itself in a category of its own — a nation the rest of Europe no longer trusts.

The gathering Thursday night of finance ministers from the 17-nation euro zone, together with leaders of the European Central Bank and theInternational Monetary Fund, was supposed to bless a much-delayed agreement among Greek politicians on austerity measures required to win a new bailout of €130 billion, or $171 billion.

Instead, the ministers made it plain that they did not believe the figures, saying that Greece needed to find €325 million extra in savings before the bailout was signed off on, hopefully next Wednesday.

The Greek Parliament and main political parties will have to endorse the austerity measures. And if Greece gets its new bailout, the money may be paid into a special account that would cover debt repayments before any money was released to general government spending.

According to some unofficial estimates, up to 70 percent of Greece’s bailout money might be spent this way.

The rebuff from euro zone ministers was greeted with violence on the streets of Athens during a general strike Friday, while five politicians resigned, plunging the government into a new crisis before the pivotal vote in Parliament on Sunday.

After a period of relative calm, financial markets and the euro fell. The Euro Stoxx 50 index, a barometer of euro zone blue-chips, fell 1.65 percent, while the FTSE 100 index in London fell 0.73 percent. In New York, the Standard & Poor’s 500 index was down 0.92 percent by midafternoon. The euro declined to $1.3175 from $1.3286 late Thursday in New York.

The failure to reach a final deal and the disorder in Athens have “been an excuse to deflate some of the Greek-related optimism in the market,” Gary Baker, an equity strategist at Bank of America Securities Merrill Lynch in London, said, though he cautioned against reading too much into the market moves.

It is not in the interest of the euro zone or of Greece to see the country default, and all parties are hoping that the Greek Parliament will approve the deal on Sunday.

Even if that happens, there is work to be done. A deal with the European Central Bank to help ease Greece’s debt burden by giving up profits on its holdings of Greek bonds has not yet been struck. In Berlin, Mr. Schäuble, briefing lawmakers, said that current plans would leave Greece’s debt as high as 136 percent of gross domestic product by 2020, as opposed to 120 percent foreseen in the country’s second bailout, Bloomberg News reported.

Behind closed doors in Brussels the lack of trust was evident, and it is this that may have put the entire bailout at risk.

In one of several tough exchanges, the Greek finance minister, Evangelos Venizelos, was taken to task by Mr. Schäuble for having failed to begin the required negotiations with labor unions to enable the minimum wage to be reduced. Mr. Venizelos had been reluctant to do that before knowing the bailout would be approved; his European partners saw this as time-wasting, according to one official briefed on the talks but not authorized to describe confidential discussions.

Ministers vented their frustration in public as well. “We cannot live with a system where promises are made and repeated and repeated and implementation measures are from time to time too weak,” said Jean-Claude Juncker of Luxembourg, who chairs meetings of the 17 euro zone finance ministers.

The Netherlands and some other countries have outlined a lot of demands which should be clarified,” added Jan Kees de Jager, the Dutch finance minister. “It is the implementation that we have seen lacking, so we did ask a series of critical questions.”

Worries that the Greek public administration is both bloated and chronically weak appear to have been borne out. The process of selling off state assets has been so slow that Greece is to be given longer to raise the €50 billion it once said it would use to pay down its debt. Now the plan is to produce €19 billion from initial state asset sales by the deadline of 2015, with the remaining €31 billion to be produced later.

On Thursday the country’s deputy finance minister, Pantelis Economou, said that the state had issued penalties worth €8.6 billion for tax evasion and other offenses during the past two years. But according to Kathimerini, a daily newspaper, only 1 percent of the €8.6 billion has been collected, meaning that less than €100 million made it to public coffers.

For their part, Greek officials believe they have been placed in an impossible position by the so-called troika of international lenders — the European Commission, European Central Bank and International Monetary Fund — that is administering the bailouts.

Demands keep changing and the program is a “moving target” as Greece is pushed deeper into recession, said one European official who, like many involved in the talks, was not authorized to speak publicly.

With the plans reviewed every three months, and with the economic outlook deteriorating steadily, Greece was being asked for ever tougher measures to hit its targets. And elected politicians were finding it an impossible sell.

“How much can you do in three months?” asked one Greek official.

Failure by the international community to confront the unsustainability of Greece’s debt burden has led to a somewhat chaotic bailout process. For example, private investors in Greek bonds were initially told they would be repaid in full, then asked to accept losses of 21 percent, which subsequently rose to 50 percent and may now amount to 70 percent.

In Italy, the arrival of a technocratic prime minister, Mario Monti, has helped restore confidence in the country’s ability to pull itself out of its crisis. But a change at the top has failed to work the same magic in Greece, where Lucas D. Papademos, a former vice president of the European Central Bank, is a caretaker leader.

“Monti is trusted by European partners,” said one European minister. “Papademos has a much more difficult situation. In Italy the situation is not good, but it is more manageable. In Greece you see how difficult it is just to bring three political parties together to agree measures.”

While Portugal’s economic predicament is close to that of Greece, one senior E.U. official argued that the Portuguese, at least, had a functioning administration.

“It is increasingly understood that Greece is a very unique case,” added a European diplomat. “It is not holding up to its commitments. In Ireland, Portugal, Spain and Italy things are not rosy, but they are in a different class.”

David Jolly contributed reporting from Paris.