Analysis: New Greek rescue promises euro drama, not crisis

Thu Aug 22, 2013 9:39am EDT
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By Alan Wheatley and Martin Santa

LONDON/BRUSSELS (Reuters) - The need for a new rescue program for Greece promises a drawn-out drama of late-night negotiations but is unlikely to trigger the sort of crisis that has threatened the breakup of the euro in the recent past.

That the collapse of the single currency is no longer an immediate danger reflects the solidity of the political bargain that saved Greece a year ago.

Then, Germany, the euro zone's paymaster, agreed to keep aiding Greece so it could stay in the euro as long as it continued to tighten its belt and implement reforms to restore competitiveness. Portugal has received a similar assurance.

Yet the fact that Greece's program has veered off course so soon shows that Europe is still muddling through, a long way from defusing the threat to its flagship project from recession-plagued southern governments with excessive debts tied in a doom loop to vulnerable banks.

So although financial markets shrugged off German Finance Minister Wolfgang Schaeuble's surprise public acceptance this week that Greece will need more aid, the potential for turbulence remains, according to Lena Komileva with G+ Economics, a London consultancy.

"Are we looking at a scenario where the euro zone can successfully overcome the crisis and move towards a highly dynamic growth cycle supported by healthier bank balance sheets as in the US? No," she said.

The looming renegotiation of rescue packages for Portugal and Cyprus as well as Greece is one obvious flashpoint.

"None of those countries is anywhere near being able to stand on its own two feet in terms of funding itself in the market," Komileva said.   Continued...

A man carries shopping bags on a street with closed shops in Athens August 12, 2013. REUTERS/Yorgos Karahalis