Greece Derails EU Summit’s Work on Fiscal Compact, Permanent Rescue Fund

A summit in Brussels today where European leaders were meant to work on a permanent aid fund and tougher budget rules quickly devolved into a sparring match between Greece and other nations critical of Greece’s half-hearted efforts to get its deficit under control.

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Greece fended off German and Dutch calls for an overseer to take command of its budget after its deficits surpassed targets in each of the last two years. Concerns over Greece’s ability to deliver budget cuts and economic reforms are holding up other parts of the nation’s next aid package, which it needs to meet a 14.5 billion-euro bond payment due on March 20.

Greece has at least made progress in negotiations with private creditors, nearing an agreement for bondholders to accept deeper losses on a 50 percent cut in the face value of more than 200 billion euros of debt.

However, the anticipated agreement on private sector involvement, or PSI, won’t end the crisis and the Greek position will most likely be unsustainable. “Any PSI deal will bring only temporary respite,” said Niall Ferguson, a professor of economic history at Harvard University.

Furthermore, while a deal with private creditors will help secure the 130 billion-euro second bailout the European Union and International Monetary Fund agreed to in October, Greece now requires 145 billion euros, Der Spiegel reported on January 28, citing an unidentified official from the troika in Greece.

European policymakers are discussing plans to directly intervene in Greek budget discussions as the country struggles to cut its deficit, a condition of the bailout.

Patience with Greece “is really coming close to the limit,” Philipp Roesler, chief of Germany’s Free Democratic Party, the junior coalition partner, told Bild newspaper. “Time is running out. There can only be additional help if the Greek government carries out the necessary reforms.”

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