BRUSSELS—The patience of the euro zone’s paymasters with Greece is wearing paper-thin. In an often fractious meeting here Thursday night, officials present said one finance minister after another from other euro-zone nations chided Evangelos Venizelos, their Greek counterpart.
Why had the Greek government waited until the 11th hour to agree to tough measures they knew would ultimately be necessary to secure a new €130 billion ($173 billion) bailout and debt-restructuring deal? Why wouldn’t Greek politicians assume their responsibilities like those in other struggling euro-zone economies, such as Portugal, Italy, Spain and Ireland?
According to one person with knowledge of the discussions, the meeting was like “16 very angry parents severely punishing a lone child.” It was, he said, Greece’s worst day in the euro zone.
The ministers told Mr. Venizelos that Athens wouldn’t receive a penny until promised measures had been passed by the Greek Parliament. They also insisted that political leaders made a formal commitment to back the program, in an effort to ensure political support endures after expected elections in April.
The harsh message reflects Greece’s past unkept promises to its creditors from its first bailout; an erosion of trust between Athens and other governments in the currency union; and a sense, according to analysts, that leverage over Greece is waning as time passes.
It also reflects growing confidence among European policy makers that the currency area is surmounting its two-year sovereign-debt crisis. This, in turn, analysts say, has reinforced the notion that, in time, Greece could be cast adrift from the currency union without causing huge collateral damage to other members.
German Chancellor Angela Merkel has repeated in the last few weeks that “no country should be excluded from the euro zone,” but analysts say that sentiment doesn’t appear to be held universally in her government, or in the Bundesbank, the German central bank.
Many analysts are skeptical that Greece, now in its fifth year of recession, can or will keep to the terms of its new bailout, assuming it is finally agreed.
If their doubts are realized, that would create a dilemma for Ms. Merkel’s government and the country’s other official creditors: Should they push yet more money Greece’s way, force further losses on its already battered private creditors—or, in effect, push the Greeks to leave the euro? Some analysts reckon that if a Greek exit could be delayed even into the second half of this year, the euro zone will have strengthened its defenses to cope with any possible contagion.
A Greek departure would certainly, on its own, be more manageable for the financial system than a year or so ago, as banks have already taken large write-offs on their Greek government-debt holdings.
The bailout funds available to help other struggling euro-zone nations are also likely to be substantially increased, helping limit broader fallout.
Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, says another factor driving the confidence that a Greek exit wouldn’t be disastrous—except for Greece—has been the actions of the European Central Bank. Its offer in December of cheap three-year funding to banks—to be followed by a further offer later this month—appears to have created, at least for now, a “psychological firewall” around Spain and Italy, he says, apparently protecting those two large economies from contagion.
There are questions about how long that can last. Mr. Spiro says some hedge funds he advises are being tempted back into the Italian and Spanish markets by high yields. But it isn’t clear that anything has fundamentally changed in these economies since the ECB lent these funds in December. In fact, the prospect in both is for more contraction.
In an apparently private exchange captured by Portuguese television cameras Thursday night, Germany’s Finance Minister Wolfgang Schäuble told his Portuguese opposite number Vítor Gaspar that once the decision for Greece was out of the way “if then there would be a necessity for an adjustment of the Portugal” program, “we would be ready to do that.”
The implication was that, while Germany was balking at putting more money Greece’s way, good performers like Portugal and Ireland would be supported with the resources they need. “The Germans are trying to put as much clear blue water between Greece and the others as they can,” says Mr. Spiro.
Charles Grant, director of the London-based Centre for European Reform, says he has believed for some time that Greece would leave the euro because there is no political will to enact the changes needed to keep it in. While he acknowledged the growing notion that a Greek exit wouldn’t have serious repercussions for any other country, he said, “nobody can be quite sure.”
On the contrary, it is possible that one country’s departure would show that any country could leave—and set off a panic flight of money from countries such as Spain and Italy. Thus, as the once unthinkable becomes the thinkable, nobody really knows how Greece’s departure would affect the euro zone.
Officially, though, it’s not in the cards. Olli Rehn, the European Union’s economic commissioner, conceded in a speech last month that the contours of the euro zone would be different in a few years. It would no longer have 17 members, he said—but 19, with the addition of Latvia and Poland.