The Eurozone governments agreed to bail out Greece in July.
So why hasnt 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
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
governments 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.