Greece’s need for expanded bailout means tough choices to avoid euro-zone disaster

by Howard Schneider

Washington Post
June 2, 2011

There is no secret about the tab coming due — Greece will need more than $40 billion over the next year or so to keep itself afloat and avoid what European officials consider their nightmare scenario, a default by one of the countries that use the euro.

But deciding who will pay has left European, International Monetary Fund and Greek officials locked in another round of crisis talks as they try to figure out a series of tough issues. How hard should Greece’s citizens be pushed for further cuts in social programs and other concessions? How much of the bill should shift to taxpayers from other European countries? Should investors in Greek bonds — including Europe’s major financial institutions and the European Central Bank itself — take a hit?

After confronting the issue — that the government of Greece has promised far more than its economy can deliver — for a year and a half, each side is wary of giving more.

Greek officials face a restive population already absorbing high unemployment and a loss of retirement and other benefits without any clear payoff in terms of economic growth. Possible losses at major banks or at the ECB, which has bought tens of billions of dollars in Greek bonds as part of a rescue effort, have led officials to all but rule out imposing losses on bondholders. Turning Europe into a “transfer union” — where taxpayers in economically healthier countries pay for the less well off — is politically difficult.

Yet a resolution is important to more than Greece.

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