When Will Greece Say 'Enough Is Enough'?

EU leaders yesterday rounded on the new Head of the IMF calling her comments on Europe 'misguided'. Christine Lagarde's assessment is certainly stark. The former French Finance Minister argues economies are now in a 'new dangerous' phase' that requires Europe's banks be forced to recapitalize in order to cut the 'chain of contagion'.

The Parthenon in Greece
Scott E. Barbour | Getty Images

Even as hurricane Irene bore down on the East Coast of the United States, President Obama found time to call Angela Merkel yesterday to exert pressure for action from European politicians to stem the market turbulence.

On Wall Street there will be bitter disappointment that Jean-Claude Trichet did not offer more from the ECB at Jackson Hole. Trichet will meet EU officials and appear before the European Parliament Monday. But an article in the UK's Sunday Times suggesting that certain types of new debt issued by Europe's banks might be guaranteed centrally seems just speculation at this stage.

In Greece local TV stations report that before Europe's open tomorrow Alpha and Eurobank will announce that they're merging to shore each other up.

But investors will be more worried that the second EU bailout for Greece - worth $158 billion - may be yet deadlocked.

Contributing loans from the Euro Zone's other 16 states are held-up by a row over what collateral Greece should post in return.  A deal struck by the Finns under which the Greeks would deposit the equivalent of $870m in an escrow in return for their $2 billion loan triggered uproar from big donors like Germany and the IMF - because it is essentially their cash.

A suggestion that instead of cash the Greeks offer everyone physical assets as collateral, in the form of real estate or nationalized assets (many already earmarked for privatization), failed to generate agreement Friday.

But it's Germany's bigger condition attached to the $158 billion bailout that may now prove a bigger stumbling block; the demand that private sector investors share the pain of Euro Zone governments by taking a 'voluntary' 21 percent haircut now through debt swaps.

Organizers say only 60 – 70 percent of investors are expressing an interest. That may be because the terms of the schemes are still vague and the official deadline is still weeks away. But with the near continuous drum beat of comments from German academics that only a 50 percent haircut will steady Greece, it may also be that investors increasingly fear the Greeks can not keep going as they are, leaving the banks to simply start writing down their exposure.

It's notable that the Greeks are now saying that they will only work with a 90 percent take-up rate on the debt swap.

With brutal austerity taking its toll recession continues to grip the Greek economy. This year its finance minister now predicts another 5.3 percent of his economy could be destroyed.

A smaller economic base is a major reason why Greece is struggling to meet its EU/IMF deficit to GDP targets. Officials are promising 'tough negotiations' when they arrive in Athens tomorrow - with presumably more spending cuts and more tax rises.

Increasingly I hear people ask at what point Greek politicians say enough is enough, particularly if they are asked to persuade voters to accept the ultimate indignation is worth it; posting their ancient cultural heritage as collateral for a bailout primarily aimed at preventing foreign banks from having to write their debt down.