The United States and other nations are pressing European leaders to drastically increase the size of the continent's $594 billion bailout fund, perhaps by several trillion dollars. But there is growing opposition in Germany, with Europe's strongest economy, and other northern European states to massive new assistance for Greece and other debt-ridden governments. The issue may not be resolved until early November, when officials from 20 leading and emerging economies are set to meet in France.
But Greece says it will run out of money in October to operate its government, and could default on its bailout loans from last year unless international creditors hand it another $11 billion portion of the bailout. Several Greek news accounts in the last few days said that under one plan, the Athens government could default in an orderly fashion, with bondholders taking a 50 percent loss on their investments. Greek lawmakers have adopted a wide variety of spending cuts and tax increases, austerity measures that have proved highly unpopular. On Monday, transport workers staged a second strike in the last few days, snarling Athens traffic, and are planning a two-day work stoppage later in the week.
Greek police held their own protest, hanging a giant black banner from the top of a popular landmark, Mount Lycabettus that read, "Pay Day, Day of Mourning." On Sunday, police fired tear gas at protestors at Syntagma Square in central Athens. Aside from spending cuts and tax increases, the Greek government is seeking to sell rights to some of its state-owned assets to cut its deficits. On Monday, the government said it likely will announce extensions of private leases this week for the operation of the Athens airport and a sports betting monopoly and the sale of video lottery licenses.
Greece is closer to default than previously thought, calling into question whether a second planned bailout will be enough to contain the European debt crisis and thus avoid plunging the world into another global recession. As finance ministers from the eurozone meet today in Luxembourg to address the debt crisis, Greece revealed that it is in even more dire straits than envisioned when international powers agreed to a 110 billion ($146 billion) bailout deal this summer.
Based on a draft budget sent to parliament today, Greece's deficit this year will be 8.5 percent of gross domestic product (GDP), well above the 7.6 percent outlined in the bailout deal. The higher deficit was chalked up to a deeper recession than forecast, which is projected to bring public debt to a whopping 172.7 percent of GDP by next year the worst ratio in the eurozone. Greece needs an 8 billion tranche from the 110 billion deal by mid-October to avoid bankruptcy, but that dispersal is not expected to be decided upon until an Oct. 13 meeting.
In addition to the Greek bailout, eurozone leaders are also pushing to expand a more general 440 billion rescue fund to 780 billion a move that received key backing from the German parliament last week. But even before today's gloomy news, experts cautioned that both the bailout and the rescue fund were no more than temporary solutions. What we are doing right now is buying time, said Ferdinand Fichtner of the German Institute for Economic Research in Berlin. Expanding the euro rescue fund, releasing more bailout money to Greece all that buys time. But in the end there will have to be a haircut, said Mr. Fichtner, referring to writing off a portion of the debt. Its the only solution for Greece.
A Greek raised in Germany