On Thursday, the Greek Parliament passed new austerity measures — as strikes and violent protests rocked Athens — in an effort to convince Europe that it is committed to getting its economy on track. The measures would cut 30,000 civil servants from government payrolls, raise taxes and whittle collective bargaining rights.
The debate over how to divide the costs of rescuing Greece is one of the central questions European officials hope to resolve at a weekend summit that comes almost two years to the day after a newly elected government in Athens admitted that the country’s finances were “off the rails.” The meeting will cover an array of complex issues that U.S. and other world officials believe threaten the global economy and are pressuring the Europeans to address.
No other issue rubs as raw a financial nerve as the divvying of responsibility for more than $300 billion in bonds, bonds that Greece — it is now almost universally acknowledged — cannot repay. The issue has touched off a fierce lobbying effort ahead of the summit, with European officials in continuous negotiations and a delegation from the Washington-based Institute of International Finance (IIF) dispatched to work the corridors of Europe’s byzantine bureaucracy.
On Wednesday evening, an unexpected gathering of top European officials and IMF Managing Director Christine Lagarde in Frankfurt failed to bridge a divide between Germany, which is footing much of Greek’s bill and supports larger private-sector losses, and France, which is more concerned about the impact of greater losses on its banks.
German Chancellor Angela Merkel and French President Nicolas Sarkozy had said they would introduce plans to stem Europe’s debt crisis and preserve the euro Sunday during the summit. But on Thursday, Merkel’s spokesman said that the presentation was canceled and that the two leaders would hold a second summit Wednesday.
Merkel also called off a speech to her nation’s Parliament in which she was to have outlined on Friday her proposals for a comprehensive restructuring of Greece’s debt, for bank recapitalization and for revising Europe’s economic governance.
In meetings at the massive Berlaymont complex in eastern Brussels, IIF Managing Director Charles Dallara has pressed the case that banks, having agreed to a 21 percent reduction in the worth of their Greek bonds in July, should not be asked to reopen the offer.
Individual banks have been floating proposals in e-mails and private meetings, according to European officials, and warning that major losses could cause a cutback in lending that would crimp the economy. The problems could grow larger, the officials say, if the bailout fans fears that other countries — such as Ireland, Portugal and especially Italy, with its major economy — might also need, or begin to demand, similar treatment to lighten their debts.