Two steps forward, one step back. So goes the frenzied effort across Europe to bail out Greece and save it from a potentially devastating default on its debts.
A meeting of the finance chiefs of the 17 euro countries to discuss Greece's second multibillion bailout planned for Wednesday was called off after Athens failed to deliver on several demands made by its partners in the currency union.
The last-minute cancellation of the meeting — which was expected to give the green light for a key debt-relief deal with private creditors linked to the bailout — shows the eurozone wants much tougher guarantees now from Athens before giving it an extra 130 billion euros ($171 billion) in rescue loans, on top of 110 billion euros ($145 billion) granted in 2010.
Tensions between Athens and other European capitals have hit new highs this week. While the European Union is officially still warning of the far-reaching dangers of a disorderly default by Greece, some politicians have in recent weeks downplayed the effects of such an event.
"It has appeared that further technical work between Greece and the troika is needed in a number of areas," said Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the meetings of eurozone finance ministers.
While the Parliament in Athens faced down violent protests over the weekend to approve a far-reaching new austerity package, the cabinet of ministers remained locked in talks Tuesday evening over how to save an extra 325 million euros demanded last week by the eurozone.
The other finance ministers also want assurances from the leaders of Greece's two main political parties that they will implement the promised spending cuts and reforms after national elections expected for April. That demand is especially tenuous, with some commentators questioning whether it undermines democracy in Greece.
Juncker said neither of these demands had been met in time for the meeting to go ahead.
Instead, the finance ministers will speak in a teleconference on Wednesday and plan to meet in person on Monday in Brussels.
Greece is still optimistic that it will eventually get the bailout. "The adoption with overwhelming majority (in Parliament) of the program I think makes the positive decision of the upcoming Eurogroup mandatory," Manolis Othonas, Greece's deputy minister for civil protection, said in Parliament Tuesday.
But after keeping Greece alive through bailout loans for almost two years — and seeing the country repeatedly miss its targets — some of the richer euro countries like the Netherlands or Germany are reluctant to commit new money without firm assurances.
Many analysts also doubt whether the economic reforms that are part of the bailout program can really restore a country that is facing a fifth year of recession in 2012, and whose economy shrank a massive 7 percent in the fourth quarter of 2011 compared with a year earlier.
While still promising Athens help as long as it does its part, some politicians have been downplaying the potential fallout of a default by Greece.
In a TV interview Monday night, German Finance Minister Wolfgang Schaeuble stressed that Europe was doing everything to help Greece to avoid bankruptcy, "but Greece itself of course must want that."
If Greece were to default on its debt, Europe "is better prepared now than two years ago," Schaeuble told German public broadcaster ZDF.
Other officials, however, are still warning that a default could have unexpected consequences for the rest of Europe and the world economy.
"Right now, practically all the pieces are in place (for a bailout deal)," Angel Gurria, the head of the Organization for Economic Cooperation and Development said Tuesday. But if it unravels, "although we are better off today than we were two years ago for that kind of scenario, we really don't know which unexpected consequences may happen."
He said that squabbling among policymakers was creating unnecessary harm to broader financial sentiment.
"Don't allow any holdout to blackmail the world economy to continue paying a very high price for the uncertainty."
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