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Why financial markets won't give Greece a break

Despite eurozone efforts, markets refuse to believe the Greek economy can recover.

Employees are reflected on an electronic board displaying stock prices at the Athens stock exchange in Athens, April 7, 2010. (John Kolesidis/Reuters)

BRUSSELS, Belgium — It’s hard not to feel sorry for Greek Prime Minister George Papandreou. For months, the financial markets have spat on his efforts to enact dramatic enough austerity measures to begin bringing his country's enormous deficit and debt under control.

After each round of budget cuts, as unions marched against him in the streets, Papandreou publicly declared that the new measures should stop speculation on his country’s economy. He waited expectantly for the markets to concede a bit of ground, for his borrowing costs to nudge down slightly, for the gap between Greek bonds and German ones to shrink just a tad, for some sign investors finally believed there would be no default. Each time, the markets refused to give in.

Last Friday, Papandreou looked a beaten man. He had reluctantly concluded that, despite rejecting the concept for weeks, he had no choice but to ask for an international bailout package.

“The moment has come for us to gain time that markets wouldn’t give us,” he admitted sadly. Surely the markets would react positively to the $60 billion package from eurozone countries and the International Monetary Fund (IMF).

On Tuesday, Papandreou had his response: You are "junk" to us, the markets declared dismissively after Standard and Poor's issued a downgrade. The move sent a message to Portugal especially, but also to Ireland and Italy. Portuguese Finance Minister Fernando Teixeira dos Santos recognized the danger at once, saying his nation must react to “attacks” by the markets.

But Papandreou must be wondering, while contemplating even more sacrifices, why doesn’t anything we do seem to make a difference?

The Greek leader is hardly alone in his woeful wondering. In Brussels, during a discussion between European Central Bank Vice President Lucas Papademos and members of the European Parliament, Greek parliamentarian Anni Podimata pleaded with Papademos for an explanation as to why the markets won’t let up on Greece. "Are they not convinced by the EU/IMF funding mechanism?” she asked. “Is pressure building up on all of the eurozone?”

Well, Papademos said gingerly, “There have been concerns about the fiscal sustainability of Greece and also the capacity of the country to refinance its debt in the shorter term.”