Europe drawn back to its first problem: Greece

Mon Aug 27, 2012 7:26am EDT
 
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By Luke Baker and Deepa Babington

BRUSSELS/ATHENS (Reuters) - The euro zone debt crisis was born in Greece. Nearly three years and two bailouts on, Europe must decide whether to give the country yet more help or cut it loose.

For all its complexities, Greece's problems essentially come down to three simple questions: Can the country return to growth? How big are its debts? And will the first ever be enough to pay off the second?

Put like that, one might wonder why policymakers have found a solution so elusive. But as ever, the devil is in the detail, and in Greece's case the details are devilishly difficult.

That is why ongoing efforts by the European Commission, the European Central Bank and the International Monetary Fund -- together known as the 'troika' -- to work out Greece's long-term growth and debt reduction prospects are so critical.

Everyone from German Chancellor Angela Merkel to ECB President Mario Draghi and Greek Prime Minister Antonis Samaras -- who wants two more years to make the cuts demanded of him -- is nervously awaiting the outcome of the troika's report, which is expected in late September or early October.

If it concludes that Greece is moving in the right direction, with the potential for growth and long-term debt-reduction slowly improving, everyone will breathe a sigh of relief, even if a multitude of obstacles remain.

If, as appears more likely given the noises emerging from EU officials, the troika finds Greece is not doing enough and has no realistic prospect of whittling away its debts in the coming decade, then a moment of truth may finally have dawned.

With plans afoot for the euro zone rescue funds and ECB to protect Spain and Italy by intervening to lower their borrowing costs, it would seem perverse to let Greece crash out of the currency area now, unleashing a wave of contagion that would take the crisis to new levels.   Continued...

 
A woman walks past a shop with a discount sign on its window in the commercial Ermou Street in central Athens August 27, 2012. The euro zone debt crisis was born in Greece. Nearly three years and two bailouts on, Europe must decide whether to give the country yet more help or cut it loose. REUTERS/John Kolesidis