Greece said that Europe’s wealthier countries are “playing with fire” by toying with the idea of expelling it from the 17-nation euro area as talks over a second aid program ran into new obstacles.
Finance Minister Evangelos Venizelos leveled the accusation after a decision slated for tonight on an aid package worth 130 billion euros ($171 billion) was postponed until Feb. 20 at the earliest.
“We are continually faced with new terms,” Venizelos told reporters in Athens today. “In the euro area, there are plenty who don’t want us anymore. There are some playing with fire, domestically and abroad. Some are playing with torches and some are playing 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 the struggling economy or risking an unprecedented national bankruptcy that might force the country out of the euro and prompt renewed market tumult.
Tonight’s euro finance meeting was canceled late yesterday and replaced with a conference call at 5 p.m. Brussels time. Luxembourg Prime Minister Jean-Claude Juncker, chairman of the euro panel, now targets a Greek aid decision at the previously scheduled Feb. 20 meeting.
Europe lacked “sufficient elements of consensus” to complete the aid program tonight, Italian Prime Minister Mario Monti said late yesterday on Sky Italy Television. The official loans, supplemented by 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 redemption when it must come up with 14.5 billion euros or become the first country in the euro’s 13-year history to default.
The postponement is “very worrying,” and “reflects a growing concern amongst some euro-area countries that Greece will not abide by the conditions of the second bailout package,” said Nicola Mai, an economist at JPMorgan Chase Bank in London. “It appears that some euro-area countries are willing to let Greece default.”
Meantime, evidence mounted that the euro’s guardians have made progress ring-fencing Greece’s woes. Italy yesterday sold 6 billion euros of bonds at lower borrowing costs as investors shrugged off a downgrade of its credit rating by Moody’s Investors Service. The euro traded up 0.1 percent at $1.3148 at 1 p.m. in Berlin.
Greece’s caretaker Cabinet, led by Prime Minister Lucas Papademos, yesterday met Europe’s demand for 325 million euros in savings by making cuts to defense, public investment and local authorities, two government officials said.
The heads of Greece’s two biggest political parties, New Democracy’s Antonis Samaras and Pasok’s George Papandreou, will meet a second demand today by supplying written pledges to enact the 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 for deficit reduction, economic reforms and asset sales that were set when it obtained a 110 billion-euro aid package in May 2010. As a result, the once-taboo notion of a departure or expulsion from the euro zone has crept into the mainstream political debate.
“We cannot give anyone a pretext or motive to apply such a scenario that would prove to be a horror movie not just for Greece but for the world economy,” said Venizelos.
Also unclear was whether the European Central Bank, buyer of 219.5 billion euros of weaker countries’ bonds in the past two years, 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 its Greek holdings back through its national branches to euro governments.
The central bank probably spent about 47 billion euros to buy Greek bonds with a face value of 60 billion euros, yielding potential profits of 13 billion euros, according to Juergen Michels, chief European economist at Citigroup in London.
Central bankers have agreed “that we don’t wish to make a profit on Greece,” ECB council member Luc Coene of Belgium said Feb. 13 in remarks that were embargoed until today. “So when we distribute profit from a given year to the Belgian state, we will provide a breakdown of what’s due to Greece and it’s then up to the government to decide how to use it.”