Europe's trust gone, Greece at crossroads

(BRUSSELS) - Europe's trust in Greece has gone -- the question now is exactly what conditions it will put on any new loans to whatever government emerges in Athens when and if the country's old debt is restructured.

The collapse of confidence in Athens as a partner was the single most important outcome from brisk and angry Brussels talks on Thursday night during which some eurozone ministers showed a readiness eventually to cut Athens off.

"It was too little, too late," one senior negotiator who was at the Eurogroup table alongside his minister told AFP.

"Over the last year and more, the level of trust in the Greeks has deteriorated a lot -- there will be no money getting signed over on that basis," he said.

Called to consider what most thought would be the green light for a second bailout, insiders instead told of an irritated discussion about how far Greece could be placed into the political equivalent of bankruptcy administration.

One joked how Greek Finance Minister Evengelos Venizelos, a very big man, had gone down in the third in a "Sumo" wrestling match with Dutch Finance Minister Jan Kees De Jager -- the hardest-line proponent of on-the-ground EU "monitoring."

The day-to-day European Union technocratic management of the cradle of Western democracy may just be starting.

Already, it is all-but agreed the EU will set up an "escrow" account to ensure that a portion of Greek state revenue automatically goes towards repaying partner states and creditors.

Eurogroup finance ministers will re-convene on Wednesday, aiming to draw a line in the sand after two years of fretting over what Eurogroup chairman Jean-Claude Juncker said were repeated Greek promises met with feeble deliveries.

A 50-billion-euro sale of state assets which Greece promised when securing a political pledge of renewed support from EU leaders last October has so far produced very little, many complained.

The numbers were also off course despite months of painful negotiations with private creditors in a bid to write-down a huge chunk of the country's 350-billion-euro debts.

The Dutch -- from Prime Minister Mark Rutte to their EU commissioner Neelie Kroes -- have openly floated the notion once thought beyond the pale that a Greek default is now a valid option for the eurozone, markets having stabilised.

Another of just four eurozone states to retain a Triple-A credit rating, Finland's Europe Minister Alexander Stubb on Friday vented "frustration" at the latest developments.

Finland can afford to be diplomatic -- it already holds cash collateral from Greece for loans under a first 2010 bailout and won an effective opt-out from contributions under the European Stability Mechanism (ESM) bailout fund due to enter service in July.

Worryingly for Greece, hit by more strikes against austerity measures on Friday, a drip-feed second bailout now looks to be contingent on EU officials who will drive everything from suggested state sell-offs to tax collection.

European Commission spokesman Amadeu Altafaj said Friday that the second bailout could not be dependent on "political uncertainty."

The EU wants all Greek political leaders to sign a formal commitment to the quid pro quo austerity measures in the second bailout before caretaker premier Lucas Papademos triggers the campaign proper for an election expected in April.

The senior EU negotiator even said leaders could find a way to finalise the bond-swap write-down of old debt with private creditors before committing to new loans.

"We're thinking we'll keep Greece alive but not put the bailout to bed," he said.

March 20 sees Greece face a 14.5-billion-euro bond payment bill which it must meet if it is to avoid default.

"If the (private creditors) deal is done first, then there isn't such a rush in terms of loans," he added.

"We need to see a whole lot more before we can take the second programme to our parliament (for approval)."

Analysts said it appeared a crossroads has been reached, for both Greece and the EU.

"Might it not be preferable to imagine a solution other than keeping Greece inside a monetary club whose rules it does not respect," said Bruno Cavalier, chief economist with Oddo Securities in French-language business daily Les Echos on Friday.