Europe’s leaders are gearing up for a high-stakes week of financial diplomacy that could determine Greece’s future and the stability of the 17 countries that use the euro.
The first round of shuttle diplomacy began Monday when Germany’s foreign minister, Guido Westerwelle, hosted his Greek counterpart, Dimitris Avramopoulos, ahead of a meeting in Berlin on Friday between their countries’ leaders, Chancellor Angela Merkel and new Prime Minister Antonis Samaras.
French President Francois Hollande visits Berlin on Thursday for discussions with Ms. Merkel and then will meet Mr. Samaras in Paris on Saturday. Jean-Claude Juncker, the Luxembourg prime minister who chairs the eurozone finance ministers’ meetings, is due in Athens Wednesday.
Meanwhile, Greece’s finance officials were working to hammer out 11.5 billion ($14.19 billion) in spending cuts necessary for it to continue receiving the international funding that is protecting it from bankruptcy.
The eurozone is awaiting a report next month on Greece’s progress in implementing reforms and austerity measures demanded in exchange for two massive bailout packages. The report is being compiled by the so-called “troika” representatives of the European Union, European Central Bank and International Monetary Fund.
Greece has been dependent on two multi-billion international bailouts from other eurozone countries and the IMF since its debt crisis broke in 2010. But despite taking a series of harsh austerity measures that saw salaries and pensions slashed and repeated rounds of tax hikes, the results have not been what European and Greek officials hoped for.
The country has fallen behind on implementing the reforms and austerity measures, fuelling impatience in Germany and other eurozone countries. Should the troika’s report find that Greece has not been meeting its bailout commitments, the country could face the prospect of having its funding cut off. This would force the country into a chaotic default on its debts and eventually out of the eurozone a move that would further destabilize the currency bloc and threaten the economies of countries such as the U.S. and China.
Mr. Samaras’ fragile three-party coalition government, formed after two elections in May and June, has said it hopes to renegotiate parts of the unpopular bailout conditions, mainly seeking an extension in the two-year austerity deadline. But German officials and lawmakers have made it clear they have no appetite for granting Greece more time to comply with the terms of its rescue packages or other concessions.
Mr. Westerwelle, speaking alongside Mr. Avramopoulos after their talks, said Greece needs to carry out the reforms that have already been agreed upon, but that “the German government wants us to remain together in the eurozone.”
Finance Minister Wolfgang Schaeuble said on Saturday, “I have always said that we can help the Greeks, but we cannot responsibly throw money into a bottomless pit.” The parliamentary leader of Ms. Merkel’s conservative bloc, Volker Kauder, has insisted that there is no room for giving Greece more time and says he sees little chance of Germany’s governing coalition supporting a third rescue package.
Meanwhile, Greece’s Finance Minister Yannis Stournaras met with his deputy ministers and Labour Minister Yannis Vroutsis to hammer out measures to cut government spending by 11.5 billion ($14.19 billion) so it can continue receiving the international funding.
The officials aim to finalize the measures for 2013 and 2014 in time for a visit to Athens on Wednesday by Juncker.
The measures are seen as key for the “troika” to agree to give Greece the next bailout installment. The country’s debt stands at more than 300 billion, and the economy is struggling through a fifth year of recession with unemployment at above 23 percent.
Still, underlining the uncertainty about Greece’s future, the German weekly Der Spiegel reported this weekend that an initial assessment by the troika inspectors suggests Greece may need to cover a financing shortfall of up to 14 billion over the next two years, rather than 11.5 billion. It did not cite sources.