Plans for Greece to default, potentially leaving the euro, have been drafted in Germany as the European Union begins to face up to the fact that Greek debt is spiralling out of control - with or without a second bailout.
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Riot police chase away high-school students during an anti-austerity rally at central Syntagma square in Athens Photo: REUTERS
The German finance ministry is actively pushing for Greece to declare itself bankrupt and to agree a "haircut" on the bulk of its debts held by banks, a move that would be classed as a default by financial markets.
Eurozone finance ministers meet on Monday to approve the next tranche of loans from the EU and the International Monetary Fund, designed to stave off national bankruptcy while the new Greek government puts the country's finances in order.
But the severe austerity measures being demanded have caused such fury in Greece, and the cuts required are so deep, that Wolfgang Schäuble, the German finance minister, does not believe that any government would be able to implement them.
His pessimism has been tipped into despair with a secret European Commission, Central and IMF report that even if Greece made good on its promises, it would not be enough to reach the target of bringing total debt to 120 per cent of GDP by 2020.
"He just thinks the Greeks cannot do what needs to be done. And even if by some miracle they did what has been promised, he - and a growing group - are convinced it will not pull Greece out the hole," said a eurozone official.
"The idea instead is that the Greek government should officially declare itself bankrupt and begin negotiating an even bigger cut with its creditors. For Schäuble, it is more a question of when, not if."
The German finance minister's comments are certain to plunge the authorities in Athens into even deeper gloom. On Saturday they tried to sound optimistic, with a cabinet meeting to thrash out the final details of an austerity package.
The cuts, including a reduction in the minimum wage, mass redundancies within the public sector, and a slashing of the health and defence budgets, sparked rage on the streets of Athens last week, with buildings set on fire amid angry protests.
But the country's politicians are resolutely trying to sound upbeat. "The Greek people have done everything they can and we are determined to make good on our commitments," said Christos Papoutsis, public order minister.
The French prime minister, Francois Fillon, lent his support to the embattled Greeks when he cautioned last week that Europe should not "play with the default of Greece" and must now play its part.
"The Greeks have promised very important reforms," he told RTL radio. "The Europeans now have to keep their commitments."
With Greek morale at rock bottom, the national mood darkened yet further after armed thieves looted a museum on Friday in Olympia, birthplace of the Olympic Games, and stole bronze and pottery artefacts - just weeks after the country's National Gallery was burgled.
One Greek newspaper suggested the state could no longer properly look after the nation's immense cultural heritage. "The Greek state has gone bankrupt, let's face it," the conservative daily Kathimerini said in an editorial.
"If the state cannot guard the country's great cultural heritage for financial or other reasons it must find other ways to do it."
Mr Schäuble's pessimism will not be welcomed in Athens. The hugely influential German politician's doubts have been growing for several weeks, and prompted angry exchanges when Greece accused Germany of trying to drive it out of the euro.
His scepticism is not yet fully shared by Angela Merkel, who is said still to be determined to prevent Greece's financial collapse. "She thinks Greece going bust could cause a shock wave that buries other countries - with Spain and Italy among them. It could break apart the entire monetary union," said an official.
But it has support from Austria and Finland - holding the prospect that a eurozone meeting tomorrow will fail to agree the next set of EU-IMF payments for Greece.
Greece must service €14.5 billion of debt on March 20 and, before EU-IMF cash can flow into its accounts, persuade private creditors of the country, mainly banks, insurance companies and funds, to give up on 70 per cent of their claims.
"The private sector involvement takes at least four weeks to issue the prospectus and to get subscribers, and without a deal on Monday then time will run out in March," said an EU diplomat.
Rumours are already circulating in Wall Street that banks are preparing for a "credit event" - a technical term used by credit agencies to mean a default - in the days immediately following March 20, as Greece looks likely to be unable to meet its debts.
The sense that an endgame is approaching has been fuelled by the secret "troika" report, by EU, IMF and ECB officials on Greek debt "sustainability".
It found that even if Greece implemented all the austerity measures expected of it, and if it achieves highly optimistic economic growth targets, it will still fall short of what is needed, with debt likely to total 129 per cent of GDP in 2020.
But the European Central Bank and the Eucopean Commission are, for now, lining up with Mrs Merkel to push for the rescue attempt to continue, fearful that the financial tsunami that would be unleashed if it failed would swamp the eurozone.
Mr Schäuble maintains that since Greece is already regarded by the financial world as bankrupt, a formal bankruptcy would have no negative consequences for other euro members.
"The idea instead is that the Greek government should officially declare itself bankrupt and begin negotiating an even bigger cut with its creditors. For Schäuble, it is more a question of when, not if."
The German finance minister's comments are certain to plunge the authorities in Athens into even deeper gloom. On Saturday they tried to sound optimistic, with a cabinet meeting to thrash out the final details of an austerity package.
The cuts, including a reduction in the minimum wage, mass redundancies within the public sector, and a slashing of the health and defence budgets, sparked rage on the streets of Athens last week, with buildings set on fire amid angry protests.
But the country's politicians are resolutely trying to sound upbeat. "The Greek people have done everything they can and we are determined to make good on our commitments," said Christos Papoutsis, public order minister.
The French prime minister, Francois Fillon, lent his support to the embattled Greeks when he cautioned last week that Europe should not "play with the default of Greece" and must now play its part.
"The Greeks have promised very important reforms," he told RTL radio. "The Europeans now have to keep their commitments."
With Greek morale at rock bottom, the national mood darkened yet further after armed thieves looted a museum on Friday in Olympia, birthplace of the Olympic Games, and stole bronze and pottery artefacts - just weeks after the country's National Gallery was burgled.
One Greek newspaper suggested the state could no longer properly look after the nation's immense cultural heritage. "The Greek state has gone bankrupt, let's face it," the conservative daily Kathimerini said in an editorial.
"If the state cannot guard the country's great cultural heritage for financial or other reasons it must find other ways to do it."
Mr Schäuble's pessimism will not be welcomed in Athens. The hugely influential German politician's doubts have been growing for several weeks, and prompted angry exchanges when Greece accused Germany of trying to drive it out of the euro.
His scepticism is not yet fully shared by Angela Merkel, who is said still to be determined to prevent Greece's financial collapse. "She thinks Greece going bust could cause a shock wave that buries other countries - with Spain and Italy among them. It could break apart the entire monetary union," said an official.
But it has support from Austria and Finland - holding the prospect that a eurozone meeting tomorrow will fail to agree the next set of EU-IMF payments for Greece.
Greece must service €14.5 billion of debt on March 20 and, before EU-IMF cash can flow into its accounts, persuade private creditors of the country, mainly banks, insurance companies and funds, to give up on 70 per cent of their claims.
"The private sector involvement takes at least four weeks to issue the prospectus and to get subscribers, and without a deal on Monday then time will run out in March," said an EU diplomat.
Rumours are already circulating in Wall Street that banks are preparing for a "credit event" - a technical term used by credit agencies to mean a default - in the days immediately following March 20, as Greece looks likely to be unable to meet its debts.
The sense that an endgame is approaching has been fuelled by the secret "troika" report, by EU, IMF and ECB officials on Greek debt "sustainability".
It found that even if Greece implemented all the austerity measures expected of it, and if it achieves highly optimistic economic growth targets, it will still fall short of what is needed, with debt likely to total 129 per cent of GDP in 2020.
But the European Central Bank and the Eucopean Commission are, for now, lining up with Mrs Merkel to push for the rescue attempt to continue, fearful that the financial tsunami that would be unleashed if it failed would swamp the eurozone.
Mr Schäuble maintains that since Greece is already regarded by the financial world as bankrupt, a formal bankruptcy would have no negative consequences for other euro members.
Socialist oligarch dynasties drove their Trojan Horse to Brussels and now resort to preSocratic sophistry to talk their way out. How can Greece grow is simple business software costs fivefold due to kleptocratic taxation?
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