October 5, 2011
The admission by top European officials that Greece's fiscal distress is deepening has increased the chance that a July deal to give Athens more cash could be revised to exact a greater toll on its private-sector creditors.
At a two-day closed-door meeting here that ended Tuesday, European finance ministers debated what to do with their sickest patient. No decisions were made, but the notion of bigger losses for creditors was broached, people familiar with the matter said.
The reappraisal is the consequence of an unpleasant reality: Greece is missing its budget-deficit target and will likely need additional rescue money to plug the gap. Demanding more pain from private bondholders could be a way to do that.
If European governments take that step, it risks heightening worries about banks and other indebted economies, further upsetting financial markets. Keeping such contagion under control means governments are also discussing how to build a firewall around Greece, for example by providing more funds to help other countries pay their debts and support their banks.
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