Eurozone finance ministers meet later to decide whether to release the next 33bn euros ($42bn; £27bn) of bailout cash needed by Greece to stay afloat.
On the agenda will be a two-year delay to Greece’s austerity programme, how to meet the country’s extra funding needs, and how to make its debts sustainable. The International Monetary Fund, which will also be at the meeting, insists Greece’s debtload must be alleviated.
But Germany and the European Central Bank oppose writing off Greece’s debts. The EU has already accepted the need to give Athens two more years to get its overspending under control.
Spending cuts have added to the devastation the Greek economy, which it was confirmed last week shrank a further 7.2% in the third quarter of 2012 from a year earlier.
The far-right Golden Dawn movement is on the rise – and is rumoured to have infiltrated the Greek police – and there are concerns that the country’s pro-austerity government – a shaky coalition of right-wing and left-wing former adversary parties – may fall apart.
However, giving Greece more time inevitably means that the government will also be borrowing more for longer.
Athens is supposed to cut its total debtload to 120% of annual economic output by 2020 under the current bailout programme.
Some eurozone ministers appear to want to postpone this deadline by two years, but the IMF opposes this, believing that the 2020 deadline must be retained if it is to deem Greece’s debts “sustainable”. The Fund is not allowed to lend to a country that it deems incapable of repaying its debts. But it is unclear what Greece can do to cut its debtload.
As a precondition to its current, second bailout package, Greece has already negotiated with its private sector lenders a write-off of three-quarters of the value of what it owed them. There has been talk of a similar write-off of what Greece owes its official lenders – including the ECB and the eurozone’s bailout funds – but almost certainly not the IMF.
However, any such debt forgiveness has been fiercely resisted by the German government, who deems such a move politically untenable with German voters.
The German finance minister has made clear that it could not permit any further lending to Greece if the country fails to honour its existing debts.
The ECB is also against cancelling the Greek debts it owns, something that it would consider “monetisation of government debt”, which is forbidden by the central bank’s constitution. Greece has earned itself one new ally in the Netherlands. The previous Dutch government took a similarly hard line to Germany, but elections in September brought a new centre-left government to power on a wave of anti-austerity sentiment.