Greece said that Europe's wealthier countries are “playing withfire” by toying with the idea of expelling it from the 17-nationeuro area as talks over a second aid program ran into newobstacles.

Finance Minister Evangelos Venizelos leveled the accusationafter a decision slated for tonight on an aid package worth 130billion euros ($171 billion) was postponed until Feb. 20 at theearliest.

“We are continually faced with new terms,” Venizelos toldreporters in Athens today. “In the euro area, there are plenty whodon't want us anymore. There are some playing with fire,domestically and abroad. Some are playing with torches and some areplaying with matches. But the risk is equally great.”

Two years after pledging to pull Greece back from the brink,European leaders are torn between pouring more aid into thestruggling economy or risking an unprecedented national bankruptcythat might force the country out of the euro and prompt renewedmarket tumult.

Tonight's euro finance meeting was canceled late yesterday andreplaced with a conference call at 5 p.m. Brussels time. LuxembourgPrime Minister Jean-Claude Juncker, chairman of the euro panel, nowtargets a Greek aid decision at the previously scheduled Feb. 20meeting.

Europe lacked “sufficient elements of consensus” to complete theaid program tonight, Italian Prime Minister Mario Monti said lateyesterday on Sky Italy Television. The official loans, supplementedby about 100 billion euros of debt relief from private bondholders,has been in the works since July.

Each day lost brings Greece closer to a March 20 bond redemptionwhen it must come up with 14.5 billion euros or become the firstcountry in the euro's 13-year history to default.

The postponement is “very worrying,” and “reflects a growingconcern amongst some euro-area countries that Greece will not abideby the conditions of the second bailout package,” said Nicola Mai,an economist at JPMorgan Chase Bank in London. “It appears thatsome euro-area countries are willing to let Greece default.”

Meantime, evidence mounted that the euro's guardians have madeprogress ring-fencing Greece's woes. Italy yesterday sold 6 billioneuros of bonds at lower borrowing costs as investors shrugged off adowngrade of its credit rating by Moody's Investors Service. Theeuro traded up 0.1 percent at $1.3148 at 1 p.m. in Berlin.

Greek Cuts

Greece's caretaker Cabinet, led by Prime Minister LucasPapademos, yesterday met Europe's demand for 325 million euros insavings by making cuts to defense, public investment and localauthorities, two government officials said.

The heads of Greece's two biggest political parties, NewDemocracy's Antonis Samaras and Pasok's George Papandreou, willmeet a second demand today by supplying written pledges to enactthe cuts, no matter who takes power in elections in coming months,a government official in Athens said.

Greece has depleted its credibility by missing targets fordeficit reduction, economic reforms and asset sales that were setwhen it obtained a 110 billion-euro aid package in May 2010. As aresult, the once-taboo notion of a departure or expulsion from theeuro zone has crept into the mainstream political debate.

“We cannot give anyone a pretext or motive to apply such ascenario that would prove to be a horror movie not just for Greecebut for the world economy,” said Venizelos.

Also unclear was whether the European Central Bank, buyer of219.5 billion euros of weaker countries' bonds in the past twoyears, would contribute to debt relief in the new package.

Euro statutes bar the central bank from financing governments.One workaround would be for the ECB to funnel profits from itsGreek holdings back through its national branches to eurogovernments.

The central bank probably spent about 47 billion euros to buyGreek bonds with a face value of 60 billion euros, yieldingpotential profits of 13 billion euros, according to JuergenMichels, chief European economist at Citigroup in London.

Central bankers have agreed “that we don't wish to make a profiton Greece,” ECB council member Luc Coene of Belgium said Feb. 13 inremarks that were embargoed until today. “So when we distributeprofit from a given year to the Belgian state, we will provide abreakdown of what's due to Greece and it's then up to thegovernment to decide how to use it.”

Bloomberg News

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