'The Troika's Policies Have Failed': European Doubts Growing over Greece Debt Strategy

For months, European leaders have been trying to find a way out of the Greek debt crisis. But austerity is merely driving the country deeper into economic despair. Is it time for a radical rethink? Many think the answer is yes. By SPIEGEL Staff

Photo Gallery: The Greek Austerity Tragedy Photos
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It would have been hard for German Chancellor Angela Merkel to find a more appropriate setting from which to promote her policies for Greece. She is sitting in a wide leather chair in Berlin's Neues Museum, home to Egyptian treasures and classical antiquities. The ancient columns towering behind her lend the scene an Acropolis-like air.

It's Tuesday of last week, and Merkel has been invited by a foundation to join in a discussion on the future of Europe. A young woman stands up and identifies herself as a foreign student studying in Germany and a "despairing representative of a younger Greek generation." She says that, of course, she would like to return to her home country after completing her studies. "But whenever I make inquiries about work in Athens," she says, "I'm only offered jobs in Germany."

Merkel nods. The situation in Greece is "extremely difficult," she says, adding that she cannot imagine a currency union without the highly indebted nation. "I want Greece to keep the euro," she says. And then, unasked and unambiguously, she provides something akin to a letter of guarantee for the Greeks. "I would not participate in pushing Greece out of the euro," she says. "That would have unforeseeable consequences."

It was a clear message at the beginning of a week in which those seeking to save the euro once again lost fundamental control over their drama. Europe's leaders had been hoping to finally present to their skeptical citizens a convincing and viable plan for rehabilitating Greece and fortifying the will to preserve the currency union in its current form at any price.

Growing Doubt

Instead, we are left with the outlines of a program that not even its designers believe in anymore. Finance ministries in Europe are growing increasingly skeptical about Greece's ability to reform, despite the passage on Sunday evening of a vast new austerity package in Athens. Efforts to get private creditors to participate in debt relief for the country have likewise been slow to make progress. And there is growing doubt among politicians in Berlin about the current rescue strategy -- as there is among the parties in Athens. Late last week, the populist LAOS party, the smallest of the three Greek parties in the current ruling coalition, announced it would no longer back the bailout deal and related austerity measures.

Europe is now paying the price for the inability of its leaders -- together with the International Monetary Fund (IMF) and its managing director Christine Lagarde -- have still not been able to agree on effective therapy for improving Greece's economic health. They share the belief that, given the unforeseeable consequences, a Greek exit from the euro zone should be avoided at all costs. But it remains unclear how the highly indebted country can be nursed back to health within the currency union.

In any case, the new program European leaders hammered out with their Greek partners last week would hardly seem to fit the bill. Although the ailing country will receive €130 billion ($172 billion), this massive amount of money won't necessarily make the country's rehabilitation any easier. The country's unsustainable mountain of debt will, of course become smaller, but that alone will hardly help. And while Athens makes even more cuts in wages, pensions and state expenditures, it isn't even remotely clear how this formula will return the Greek economy to growth. Fundamentally, Europe's strategy can be reduced to a single message: More of the same!

Yet after two years of fighting Greece's debt crisis, hardly anyone believes that this strategy will work -- not in Athens, Brussels or Berlin. German Finance Minister Wolfgang Schäuble stopped pretending long ago that he wasn't extremely annoyed by the stalling, delaying and squabbling of the parties in Athens. The same is true of Jean-Claude Juncker, the prime minister of Luxembourg who chairs the Euro Group, made up of finance ministers of the 17 euro-zone member countries. When asked whether he and his colleagues were slowly losing patience with Greece, he gave the curtest answer possible, saying only: "Yes."

The Ministers Were Annoyed

Last week, the party leaders that Greek Prime Minister Lucas Papademos had invited to his offices in Athens were back in top form. Plans had originally called for them to put their signatures on the new cost-cutting program by the beginning of the week. But, on Thursday afternoon, as finance ministers from the rest of the euro-zone countries were already making their way to Brussels to discuss Greece, they still hadn't reached an agreement.

The ministers were annoyed, Schäuble in particular. He was in favor of canceling the Thursday meeting altogether. But most of his colleagues insisted on holding it nonetheless. Still, it quickly became clear that no decisions of substance would result. "You don't need to wait around because there will be no decision (tonight)," Schäuble told reporters when he arrived outside the European Council building in Brussels.

As it turned out, Schäuble was right: The ministers couldn't make any decisions because some important documents were missing. A draft agreement on the debt relief agreement between Greece and its private creditors was missing as was an agreement about the most urgent austerity measures. Furthermore, the leaders of Greece's three coalition parties had failed to provide written pledges that they would abide by the decisions past elections scheduled for April. Most importantly though: The Greeks hadn't even submitted an application for fresh financial assistance.

The decision on the bailout package is now supposed to be made on Wednesday. But even the finance ministers doubt whether the second Greek austerity package will be enough. Solving Greece's problems, many have come to recognize, will likely take closer to 20 years rather than just 10.

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