Europe's creditor countries struggled to bridge divisions over arescue of Greece, seeking more control over how future aid is spentas the clock ticked toward a possible default next month. Stocksand the euro fell.

In a replay of the brinkmanship that marked the early stages ofthe Greek crisis two years ago, euro-area finance ministersextracted concessions from political leaders in Athens intended topave the way for the endorsement of a 130 billion-euro ($171billion) aid package next week.

While “further considerations are necessary regarding thespecific mechanisms to strengthen the surveillance of programimplementation,” Europe is set to make “all the necessarydecisions” on Feb. 20, Luxembourg Prime Minister Jean-ClaudeJuncker said in an e-mailed statement after chairing a conferencecall of finance chiefs late yesterday.

Greece's plea for more aid on top of the 110 billion eurosawarded in 2010 has stirred recriminations on both sides ofEurope's north-south economic divide, with taxpayers in better-offcountries rebelling against further handouts. Each day lost bringsGreece closer to a March 20 bond redemption when it must make a14.5 billion-euro payment or become the first country in the euro's13-year history to default.

Greece made “substantial further progress” by outlining 325million euros in additional savings and providing written pledgesfrom the leaders of its two main parties not to backslide on thebudget cuts, Juncker said.

Greece has now met all conditions set by the European Union andInternational Monetary Fund for the lifeline, Finance MinisterEvangelos Venizelos told reporters in Athens after the 3 1/2-hourtelephone consultations.

Before the call, Finland and the Netherlands had appealed forthe postponement of a new program until elections as early as Aprilproduce a full-time Greek government that replaces the caretakeradministration, one European official said. In that scenario, theeuro area would arrange a bridge loan to get Greece past the Marchpayment, the official said.

“Ultimately the question is whether Greece has political will tosort out their economy and fulfill the conditions,” Finnish FinanceMinister Jutta Urpilainen told reporters in Helsinki yesterday.

Juncker's post-call statement didn't address the question of apossible interim loan. It indicated that there is no accord yet ona proposal to set up an escrow account to ensure that the aid moneygoes to paying creditors.

Markets

Tensions over Greece pushed the euro down 0.4 percent to $1.3012at 8:20 a.m. in Brussels. Futures on the Euro Stoxx 50 Index slid 1percent.

A delayed decision on public support for Greece until after thestill-unscheduled election would risk snagging a separate componentof the package: a bond exchange by private investors designed towipe 100 billion euros off of Greece's debt.

While some German finance officials see the merits of puttingback approval of a multi-year aid program until after the Greekelection, Chancellor Angela Merkel hasn't made her stance clearyet, the European official said.

Buoyed by an uptick in opinion polls, unemployment at atwo-decade low of 6.7 percent and European backing for aGerman-designed fiscal discipline treaty, Merkel has warned inrecent weeks of the risks of letting Greece default or pushing itout of the euro.

The leader of Europe's dominant economy is also under pressurefrom Italy's new prime minister, Mario Monti, who has emerged asthe spokesman for economically depressed southern Europeancountries struggling against German-imposed austerity.

A former European commissioner who leads an interim governmentin Rome, the nonpartisan Monti said Greece is being put underunbearable strains and traced the origins of the crisis to moves byprior German and French leaders to soften the euro's deficitrules.

“The very tough approach being taken toward Greece today maylead us to regard this as being excessive, and it probably is,”Monti told the European Parliament in Strasbourg, France yesterday.“There are no good guys and bad guys. We all need to feel jointlyresponsible.”

Sarkozy's Campaign

By twinning fiscal savings with an economic overhaul in Italy,Monti has earned respect in Germany just as Merkel's chiefcrisis-management partner, French President Nicolas Sarkozy,plunges into a reelection campaign that polls indicate he willlose.

Greece has squandered credibility by missing targets for deficitreduction, economic reforms and asset sales that were set for thefirst aid package. As a result, the once-taboo notion of adeparture or expulsion from the euro has crept into the mainstreampolitical debate.

In Athens, political leaders responded with alarm to the threatsfrom northern Europe. Early yesterday, Venizelos said wealthiercountries are “playing with fire” by toying with the idea ofbooting Greece out of the euro.

The head of Greece's second-biggest party, New Democracy'sAntonis Samaras, was dragged into another German-Greek spat when hewas blamed by German Finance Minister Wolfgang Schaeuble forholding up economic reforms.

Samaras was defended by Karolos Papoulias, Greece's largelyceremonial president, a veteran of the anti-Nazi resistance duringWorld War II.

“I don't accept the ridiculing of my country by Mr. Schaeuble,”the 82-year-old Papoulias said in Athens. “I don't accept it as aGreek. Who is Mr. Schaeuble to ridicule Greece? Who are the Dutch?Who are the Finns? We always had the pride to defend not just ourown freedom, not just our own country, but the freedom of all ofEurope.”

In solidarity with 11 million Greeks reeling from two years ofspending cuts and tax increases, Papoulias said he would work forfree, giving up an annual salary estimated by Bloomberg at 300,000euros.

Bloomberg News

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