The Eurozone governments agreed to bail out Greece in July. So why hasn’t it happened yet?

Blame three phenomena: The darkening economic horizon, threatening domestic political conditions in several Eurozone countries and a determination to exert as much pressure as possible on Athens to undertake the economic reforms they believe are needed for it to maintain its membership of the European single currency.

Even in July, when European leaders reached agreement in principle to negotiate a second €109 billion Greek rescue, the economic outlook, while deteriorating, had not become as menacing as it is today.

The chief economist at the International Monetary Fund, Olivier Blanchard, underscored the shift at a press briefing in Washington today. He said that recently the global economy has “entered a dangerous new phase; the recovery has weakened considerably and downside risks have increased sharply.”

The IMF has significantly downgraded its economic forecasts for both the Eurozone and the United States. Some senior Eurozone policymakers worry that a recession is looming. “The recession which may be coming is complicating the negotiations with Greece,” according to a senior European Union official actively participating in the discussions.

But for Eurozone officials, the deteriorating economic outlook makes it even more important to pressure Greece to make the politically difficult, growth-promoting, economic and social reforms which it committed to but failed to implement when it turned to the IMF for help in 2010. They fear that if they relax the pressure on Greece, other Eurozone countries, including Italy, (which is also drawing on Eurozone financial support) will also back away from reform programs they have promised in return for financial support. The European Central Bank, the International Monetary Fund and the European Commission (“the Troika”) are leading the bailout negotiations with Greece, Ireland and Portugal. The ECB is taking the lead in supporting Italy.

In the past few days there has been evidence that intense political pressure has contributed to a change of heart in Athens. At the weekend, George Papandreou, the Greek prime minister, cancelled a planned visit to the annual meetings of the World Bank and the International Monetary Fund in Washington in order to remain in Athens to work on the more rigorous reform package.

This followed a weekend meeting in Poland, the first ever to be attended by an American Treasury secretary (Timothy Geithner), where Eurozone finance ministers had told the Greek finance minister Evangelos Venizelos, that his government’s economic reform proposals were too weak to trigger release of the billions of euros of financial support needed to prevent Greece defaulting on its debts.