Greece Reality Check : Euro Crisis Worsens as EU Leaders Play for Time

either, says Thomas Silberhorn, a European expert with the CSU. "There is no getting around a debt restructuring for Greece."

Gerda Hasselfeldt, the new head of the CSU parliamentary group, is also distancing herself from the current Greece strategy. First it will have to be determined whether Athens has complied with the requirements of the stability program, she says. "If the requirements are not met, no funds will be disbursed."

Schäuble's notorious secretiveness is also causing problems. Last week Gunther Krichbaum (CDU), the chairman of the Committee on European Affairs in Germany's parliament, the Bundestag, complained in a letter to Schäuble that parliamentarians had not been given a current version of the ESM treaty. It was "unacceptable," he wrote, that the Bundestag members "have had to ask their Austrian counterparts for copies of the various drafts."

The growing dissatisfaction within the coalition isn't just jeopardizing the future ESM crisis mechanism, but also the government itself. The number of euro skeptics within the coalition's junior partner, the FDP, is far greater than in the CDU/CSU. In the last few weeks, 14 FDP politicians have already announced their intention to vote against the ESM. If only seven CDU/CSU parliamentarians were to join them, the government would no longer have a majority and would be require the opposition's approval -- spelling complete humiliation for the chancellor.

Backup Plan

The risk of this happening is so great that the leaders of Berlin's coalition government are now prepared to make concessions. Finance Minister Schäuble, for example, proposes giving parliamentarians a greater say in decisions related to future ESM loans.

And in the case of Greece, his officials have come up with a backup bailout plan that makes at least some allowances for the gloomy realities. Under that plan, the European Financial Stability Facility (EFSF) would approve a loan for Greece. The Greek government could use the money to buy up old bonds still on the market, which are currently trading at about 60 percent of their face value. The operation would be worthwhile for Athens, because the EFSF charges lower interest than the market and offers a more favorable repayment period.

The deal would also offer advantages for the bond issuers. They would still receive 60 percent for their old bonds, which would probably be more than they would get in the case of a severe debt haircut.

Last week, a senior representative of the German Finance Ministry indicated tentative support for this solution in a meeting with the financial experts of the coalition parliamentary groups. "There are economic reasons to suggest that such an instrument could make sense," he said. But he also pointed out that a large-scale repurchase program could not receive majority approval within the coalition or in Europe at the moment.

It would be a step in the right direction, albeit a hesitant one. Hendrik Enderlein, a professor at the Hertie School of Governance in Berlin, is now convinced that Athens needs forgiveness of "at least 50 to 60 percent of its debts," but adds: "This cannot be achieved by extending loan periods or with repurchase programs."

Oxford economist Clemens Fuest agrees. "Europe's governments must face reality," says Fuest, a member of the Academic Advisory Board at the German Finance Ministry. According to Fuest, Europe cannot "keep behaving as if Greece were not insolvent, while constantly imposing new burdens on taxpayers for the bailout."

Schäuble's predecessor has agreed with the economists' insights for some time. "The question is no longer whether Greece will restructure its debt," says former Finance Minister Peer Steinbrück, a member of the center-left Social Democratic Party (SPD), "but when."

MANFRED ERTEL, PETER MÜLLER, CHRISTIAN REIERMANN, MICHAEL SAUGA, CHRISTOPH SCHULT