Second Greek Bailout May Be In Jeopardy

As the drumbeat of default expectation grows in Athens, Europe and the United States, German Finance Minister Minister Wolfgang Schaeuble, whose country is footing the biggest part of a failed $152 billion bailout for Greece, said it will take the shattered Greek economy a decade to recover.
He told the business magazine WirtschaftsWoche that it was “clear that Greece will not be able to return to capital markets in 2012, as we thought in 2010.” He said that, instead, “Greece will need a decade rather than a year to get fully competitiveness.”
He said a planned installment loan of $11 billion would probably go ahead in October, without which Greece will go broke and be unable to pay workers and pensioners.
He also said a promised second bailout of $157 billion agreed upon by European leaders in July was now in doubt as well because of growing beliefs Greece can’t make the repayments or keep its economy from crashing, despite deep pay cuts for public workers, big tax hikes and slashed pensions and the laying off and eventual firing of as many as 100,000 employees. He was speaking at a news briefing on the sidelines of the IMF annual meeting in Washington where Greek Finance Minister Evangelos Venizelos was to meet the agency’s head, Christine Lagarde. The IMF, European Union and European Central Bank, known as the Troika, are providing the rescue package of loans.
Venizelos was trying to persuade everyone Greece can survive, but did little to calm high anxiety in Greece, where a series of transport strikes planned to continue this week has paralyzed Athens’ center and came as the head of the country’s retail federation said more than 68,000 businesses have closed this year and he expects another 53,000 to shutter their shops in the next six months. Meanwhile, the PASOK Socialist Administration of Prime Minister George Papandreou has not met demands from international investors to go after tax evaders costing the country nearly $40 billion a year in lost revenues, further stoking public anger that the political leadership is protecting its friends and business leaders.
With fears about a possible Greek sovereign debt default rising in Europe, the chief economist of German insurer Allianz said a major haircut for Greek government bondholders – paying them back less than owed – would only increase the risk of contagion in the Eurozone of the 17 countries using the euro as a currency.” I don’t believe the time is right for a debt haircut like this,” Michael Heise told German radio, in response to Greek media reports denied by Greek officials that the banks might get paid back only half what they are owed, or perhaps not at all.
German Chancellor Angela Merkel said that a Greek default was “not an option for me” as the damage was “impossible to predict.” Prices for Greek government bonds have collapsed in recent weeks amid growing investor doubts over whether the country can surmount a financial crisis if it doesn’t cut its $460 billion debt and near 10 percent deficit.
“We now expect the Greek sovereign to engage in substantial and probably coercive debt restructuring by the end of 2012 at the latest and likely much sooner,” Citibank economists said in a research note.
(Sources: Kathimerini, Bloomberg, Reuters)