Special Report: Europe's debilitating deja vu

Wed Oct 5, 2011 10:19am EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

How a host of divisions caused a seemingly unending string of setbacks to a deal for a new Greek bailout. First of three parts.

By Luke Baker, Paul Taylor and Dina Kyriakidou

BRUSSELS (Reuters) - Greek Finance Minister Evangelos Venizelos came into office offering a fresh start in his nation's financial crisis. But he began with more of the same.

When the 54-year-old politician made his debut at an emergency meeting of euro zone finance ministers on June 19, his country was teetering on the brink of bankruptcy and desperate for more aid to avoid default. The burly constitutional lawyer began his presentation by seeking to renegotiate an austerity program his predecessor had only recently concluded with European Union and International Monetary Fund inspectors. Greece needed easier terms, he said.

"Venizelos started with excuses as to why they have to change some parts of the program to buy parliamentary support," said one participant in the confidential Sunday-night meeting in Luxembourg.

The euro zone's point man in the talks, a normally mild-mannered Finn named Olli Rehn, exploded. The EU's executive arm would refuse to sign off on Greece's compliance with its bailout program, the 49-year-old economic and monetary affairs commissioner told Venizelos. Athens would get no further emergency loans, Rehn said, according to the participant. "I will not put my signature to the compliance report on behalf of the Commission," Rehn said.

That moment of tension was one of many as European officials grappled to find a fix for Greece in the first weeks of summer -- a fix that several months on has failed to ease fears in a painfully protracted drama. Today, Greece has once again fallen behind on its fiscal targets. Its economy is heading for a fourth straight year of recession in 2012. Public anger over austerity, pay cuts and rising unemployment is boiling in the streets. And growing expectations of a Greek sovereign default threaten to unleash a banking crisis in Europe and aggravate a global economic slowdown. "The negative feedback loop between sovereigns and banks is materializing," said a senior EU official in the thick of the fire-fighting.

As the strains mount, the battles over politics and policy are sometimes turning personal. In months of round-the-clock crisis management, ministers and senior officials have grown physically exhausted and at times short-tempered with each other.

Many euro zone officials blame Greece's lack of engagement for the crisis. Others point to alleged intransigence on the part of Europe's most important political leader, German Chancellor Angela Merkel.   Continued...

<p>A protester wearing a gas mask walks beside a burning van during violent protests against austerity measures in Athens, June 28, 2011. As strains over Greece mount, rescue efforts have been hampered by cultural differences among the euro zone countries, personality clashes among their leaders, denial in Greece about the extent of the problem and political paralysis that has threatened the economies not just of the euro zone but the rest of the world. Picture taken June 28, 2011. To match Special Report EUROPE/DEJAVU REUTERS/Yannis Behrakis/Files</p>