Another day, another deadline missed in the Greek debt crisis

02/06/2012 6:56 pm EST


Jim Jubak

Founder and Editor,

European financial markets today closed with still no deal on Greece.

What was Sunday’s deadline of 11 a.m. Monday for a decision by Greece’s warring political parties to accept the conditions required by the troika of the International Monetary Fund, the European Central Bank, and the European Commission before the country can get its next bundle of rescue cash passed without a decision.

What we got instead was a decision to move the deadline to Tuesday and the explanation that either 1) there never really was a Monday deadline or 2) the meeting had to be postponed because the government hadn’t supplied the leaders of Greece’s political parties with a summary of the conclusions of its Sunday meeting with those political leaders.

From Paris where she was meeting with French president Nicolas Sarkozy, Germany Chancellor Angela Merkel expressed her exasperation with Athens. “We want Greece to stay in the euro,” Merkel said. But “I want to make it clear once again that there can be no deal if the troika proposals are not implemented.” In a sign of the increasing distrust of Greece by Germany and France, Merkel and Sarkozy proposed a new wrinkle—that Greece should deposit revenue to meet future interest payments into a special escrow account to guarantee that creditors would be paid. At the same time Merkel continued to insist that the rescue program for Greece would not be increased beyond the so-far agreed 130 billion euros in spite of calculations from the International Monetary Fund that show a deteriorating Greek economy now requires a 145 billion rescue program.

To keep the pressure on Greek politicians, EuroZone leaders have blocked any final signing of a deal negotiated between Greece and its private sector creditors to write down the value of Greek debt by 70% or so. The fear, as I see it, is that Greece will take the deal, removing (or at least lowering) the danger of a March default, and that will reduce the pressure on Greek politicians to accept the troika’s conditions.

And what is the troika demanding before it releases any more money? The big items are the elimination of 15,000 public sector jobs by the end of 2012 and a total 150,000 cut in public sector jobs by the end of 2015; cuts to the country’s minimum wage; elimination of two extra annual wage payments, and reduction in the government’s defense and healthcare budgets.

But the real sticking point may not be the actual cuts but the troika’s demand that Greece’s political parties officially sign on to approve the program. That would reduce the ability of politicians running in the April elections to replace the current caretaker government to campaign as opponents of the “German” austerity program. The New Democracy party, which is leading in the opinion polls now, has been especially vehement in its opposition to further austerity. The risk New Democracy runs is that signing to prevent a default might jeopardize its prospects of winning the next election.

More to come I’m sure.
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