Only a month after Greece installed a new government, the country is facing renewed peril. Its official lenders are signaling a growing reluctance to keep paying the bills of the nearly bankrupt nation, even as the government is seeking more leniency on the terms of its multibillion-euro bailout.
Adding to the woes, there is little agreement within either side. The Greek government is itself a motley coalition of conservatives and Socialists, and the leaders of the European Commission, the International Monetary Fund and the European Central Bank, known as the troika, are increasingly divided among themselves. That is creating even more uncertainty as Greece and the rest of Europe head for yet another showdown, renewing doubts about how long Athens can remain within the euro zone.
Even as fears mount in Europe about the rapidly worsening situation in Spain, Greece’s problems are far from solved. The president of the European Commission, José Manuel Barroso, is expected to make his first visit to Athens since 2009 on Thursday to meet with Prime Minister Antonis Samaras as the troika begins yet another assessment of how well the country has complied with a spate of harsh austerity measures imposed as the price for loans. Greece’s lenders say they will not finance the country any further unless it meets its goals. But many experts say that the targets were never within reach and that pushing three increasingly weak Greek governments to comply has only profoundly damaged the economy.
“We knew at the fund from the very beginning that this program was impossible to be implemented because we didn’t have any — any — successful example,” said Panagiotis Roumeliotis, a vice chairman at Piraeus Bank and a former finance minister who until January was Greece’s representative to the International Monetary Fund. Because Greece is in the euro zone, he noted, the nation cannot devalue its currency to help improve its competitiveness as other countries subject to I.M.F. interventions almost always are encouraged to do.
At the same time, Mr. Roumeliotis and others note, the troika underestimated the negative effect its medicine would have on the Greek economy.
“The argument that is used usually by the troika in order to criticize Greece — and to ignore their mistakes — is that the deep recession is because of the nonimplementation of the structural reforms,” Mr. Roumeliotis said. While Athens has fallen woefully short on that front, he conceded, the bigger problem is that the severe cuts contributed to the downward spiral by decimating economic demand within Greece.
It remains to be seen whether the troika is prepared to force Greece to default. Much of the talk on both sides is aimed at extracting concessions in negotiations. But while Greece has been pushed to the edge before, it now appears to be running out of time because its European partners, however complicit in Greece’s current plight, appear to be running out of patience.
On Monday, the reaffirmed that the next tranche of aid to Greece would probably not be disbursed until September, putting the country at greater risk of running out of money to pay salaries and pensions.
At the end of last week, the European Central Bank cut off a crucial source of cash for Greek banks, saying that it would stop accepting Greek government bonds as collateral for low-cost loans until the troika completes its report, which is not expected until late August at the earliest. Greek banks must now borrow from the Greek Central Bank at a higher interest rate, from a fund with limited means; if it runs out, Greece would have to start printing drachmas.
Mr. Samaras’s government will try to persuade the lenders keeping it on life support that the targets they set are off base because Greece’s economy keeps contracting as a result of the tax increases and spending and wage cuts mandated by the troika. Greece’s economy shrank 3.5 percent in 2010 and 6.9 percent in 2011 and is expected to contract 7 percent this year, a decline reminiscent of the Great Depression of the 1930s. Unemployment is at 22.5 percent and expected to rise to 30 percent, while Greece’s main retailers’ association warned on Monday that sales were expected to drop 53 percent this year.
The original plan called for Greece to return to financing its debts on the open market in 2014, an idea that one European official, speaking on the condition of anonymity, now calls a “fiction.”
Complicating matters is the fact that the troika’s institutions have different mandates and constituencies. “The troika is not one homogeneous bloc,” said Guntram B. Wolff, the deputy director of Bruegel, a public policy research institute in Brussels. “They have different views.”
Some experts say that the I.M.F. has been quietly pushing to ease the austerity terms while European leaders have mostly been trying to satisfy Germany’s demands to keep Greece on a tight leash to persuade its own voters to support the bailouts.
In an interview, former Prime Minister George Papandreou, a Socialist who was in power when Greece asked for a bailout in 2010, said Athens was given nearly impossible targets at the outset because Germany wanted to send a message to other European countries of what could await them if they asked for the same, a reality now spreading across southern Europe.
“There was the moral hazard idea: ‘We can’t give Greece money too cheaply,’ ” Mr. Papandreou said. “There was a sense: ‘Punish them. We have to be careful that if we make it too easy for a bailout, others will want similar things.’ ”
While Greek officials say they were set up for failure, the mood in Germany has grown less sympathetic and calls for a Greek exit from the euro zone have escalated. Alexander Dobrindt, the general secretary of the Christian Social Union, the Bavarian sister party of Chancellor Angela Merkel’s Christian Democratic Union, said provocatively on Monday that the Greek government should now pay half its wages and pensions “in drachmas,” Greece’s former currency.
Meanwhile, Germany’s economy minister, Philipp Rösler, said on television last weekend that “for me, a Greek exit from the euro zone has long since ceased to be a frightening prospect.”
As Germans sharpen their statements, in Greece the cuts have come at a steep political cost: the more the economy contracts, the less consensus the government has to carry out the fundamental changes needed to help restart growth.
Despite the obstacles, Greece has made substantial strides. From 2009 to 2011, it slashed government spending before interest payments by 20 billion euros, or 18 percent — a feat even Greece’s critics concede would be challenging for any government. It is also expected to reduce the number of civil servants it had in 2009 — 874,000 — by more than 100,000 by the end of the year.
Today, the coalition is divided over how to identify an additional 11.5 billion euros in cuts from 2013 to 2014 without causing a total collapse in basic services. In the coming days, it is expected to announce the merging of state entities and cuts to social welfare payments. Athens has said it will not lay off state workers, but reduce them through attrition and early retirement. And it has set a ceiling of around 2,400 euros a month for pensions.
But some of the government’s gain in reducing its deficit has come from not paying its bills to Greek companies, making things worse for the economy when thousands of such companies are going out of business.
“A reform needs two things: time and trust,” said Anna Diamantopoulou, a minister in the governments of Mr. Papandreou and Lucas Papademos. “We needed time to persuade people, but we did not have it.”
“If you want to restructure a small company, that takes two years,” she added. “Can you restructure a country in two years?”