Greece Cuts Off its Head to Spite its Face

At some point, somebody is going to have to sit down with Greek officials (all of them) and say, “what is wrong with you guys? You are already sinking. Take the deal.”

But no. Monday saw another deadline to respond to a bailout by the EU/IMF come and go, with Greece still reluctant to agree to something that it considers a sacrifice too far.

It is sort of understandable. The terms would make for painful reading for any country. But Greece does not seem to understand just how much trouble it is already in.

According to Reuters, Greece's failure to accept the deal that would have secured the 130 billion euro ($170) billion rescue risks pushing Athens into a default which could threaten its euro zone membership.

PASOK socialist party spokesman Panos Beglitis had said over the weekend that the leaders of the three parties backing technocrat Prime Minister Lucas Papademos' government were supposed to give their responses by noon on Sunday, although a government official denied any such ultimatum.

"The only deadline is to have a staff agreement for the second bailout and the agreement of the political leaders before Eurogroup," said the official, who wishes to remain anonymous.

Meanwhile, in Brussels, EU officials are stunned that the deal was not snapped up by the Greeks, despite the wage and pension reductions, job cuts and tougher tax enforcement measures detailed.

"It will be very bad if there is no white smoke from Athens today," said one euro zone government source.

"We have already missed deadlines. In order to prepare the fresh tranche of money and reschedule debt in the first half of March, a whole series of technical steps must be taken. We need a decision now to put the mechanism of rescheduling in place."

Papademos is still desperately trying to find a solution that will appease the EU and Germany in particular, without hurting Greece too much. The people are looking for a leader who can show strength and stand up to Europe, but the country he inherited is in such dire straits that he really is fighting a losing battle.

He said that, after five hours of talks on Sunday, party chiefs had agreed to measures including wage cuts and other reforms that would amount to spending cuts worth 1.5 percent of gross domestic product. That's probably not enough.

Still, Greek bank stocks were up 8.8 percent on Monday, the hopes resting on lenders being recapitalized rather than nationalized.

"Banks are concerned with the way they will be recapitalized, so that they remain independent ... It seems it will be done through a combination of instruments, which will reduce the risk of their nationalization," said Natasha Roumantzi, head of analysis at Piraeus Securities.

Ilias Iliopoulos, secretary general of public sector union ADEDY is not at all happy about the EU terms.

"Despite our sacrifices and despite admitting that the policy mix is wrong, they still ask for more austerity," he said.

He is not being realistic. Again, this comes down to a question of cultural differences between countries within the EU, and what is expected from workers in Greece compared to somewhere like Germany. It is something that should have been considered a lot more carefully when the euro zone first came together. Rather, we are now left with a mess involving a Greece who feels bullied and oppressed by the EU ‘man', while Germany feels like it is carrying its lazy neighbors.

The eventual conclusion will likely leave everyone unsatisfied.