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Shattered trust overshadows last-ditch efforts to solve Greek crisis

Greek Prime Minister Alexis Tsipras. Greek government asksGreek Prime Minister Alexis Tsipras. Greek government asks
Greek Prime Minister Alexis TsiprasPhotograph by Pacific Press LightRocket via Getty Images

It’s do-or-die weekend for Greece, as ministers from around Europe descend on Brussels yet again to decide whether to approve its request for billions more in aid or let it slide out of the Eurozone, dealing a potentially fatal blow to the single currency project.

As they arrived, the ministers gave a cautious welcome to overnight news that the Greek government had pushed through parliament a motion committing it to a raft of budget and other reform measures that will be necessary for any deal to go ahead. But they warned that after five months of political chicanery and brinkmanship, culminating in a referendum last weekend where the Greeks overwhelmingly rejected a similar package of measures, had destroyed trust in Athens’ ability to deliver what it is now promising.

“We have very difficult negotiations ahead,” German finance minister Wolfgang Schaeuble told reporters as he arrived. As talks between the currency union’s 19 members dragged on Saturday, the Frankfurter Allgemeine Sonntagszeitung reported that Germany had circulated a document among the group proposing Greece leave the Eurozone for five years. European Commission President Jean-Claude Juncker had already warned earlier in the week that the Commission had a “detailed” plan for a Greek exit scenario already. It wasn’t clear what, if any, relation the German document had to it.

Financial markets had reacted exuberantly on Friday after Greece signalled it would make the concessions necessary to stay in the Eurozone. But three previous Greek governments since 2010 have made such promises in the heat of the moment to avert immediate catastrophe, only to find it impossible to deliver on those promises when they got back to Athens. The sense of deja vu among the arriving ministers was obvious.

“We’ve been living like this for five years, that such lists (of promises) are sent but the implementation never follows,” said Austria’s Hans-Joerg Schelling, who put the cost of the proposed new three-year bailout at €72 billion ($80 billion). He was particularly skeptical regarding Athens’ commitments on privatization. A large part of the current left-wing government of the Syriza party hates the very idea, and even the previous center-right government of New Democracy fell well short of the targets set in the second bailout.

The age-old problem of debt sustainability is the other key stumbling block in the talks. The infernal triangle that has done so much to wreck the work of the last five years is still intact: the Eurozone will not sign a deal without the International Monetary Fund’s endorsement. The IMF, for its part, won’t sign one unless Greece’s debt is restructured. But the Eurozone won’t accept a restructuring, at least not one that involves writing off actual debt principal (the two sides are still arguing over whether a similar amount of debt relief can be secured by just extending the term of the Eurozone’s €170 billion in loans to Greece and lowering the interest rates charged).

At around 180% of GDP, Greece’s debt load is far above any other Eurozone country’s and there is no real prospect in sight of the kind of robust growth that would bring that ratio down, or at least stop it rising. Greece’s financing needs for this year have now risen sharply as a result of the economy sliding back into recession under the uncertainty of the last six months. Leaked documents suggest that its banks alone will need €25 billion in new capital to restore them to health.

Greece’s banks have been closed for nearly two weeks, something that analysts say is cutting this year’s GDP performance by about 1% a week.

The talks are expected to last until well into the evening in Brussels. If they fail to yield a positive result, then the heads of government from all 28 E.U. members are due to convene tomorrow afternoon, for what may well be a conference on how to manage Greece’s exit from the Eurozone and deal with its aftermath.