Europe could face years-long debt grind

“Failure is not certain. But success is also not certain, and if I look at financial markets, they seem to be saying that the possibilities are about even,” said Daniel Gros, director of the Brussels-based Centre for European Policy Studies.

Finance Minister George Papaconstantinou says a new tax bill to be presented this week will expand the top 40 percent tax bracket to incomes below the current 75,000 euros (US$102,000) threshold. He hopes to raise nearly 4 billion euros in extra taxes this year, and an additional 1.2 billion euros from a crackdown on the country's notorious tax evasion.

But the measures have met with resistance already. Civil servants are to strike on Wednesday, and their main umbrella union, ADEDY, warns it could call for another strike next month, depending on what the new tax bill will say. Greece's umbrella private sector union plans a separate 24-hour walkout Feb. 24.

Athens insists it can weather the storm alone -- although it has not ruled out accepting some form of help.

“We will overcome the crisis on our own,” government spokesman Giorgos Petalotis said Monday. “But we are a member of the European Union ... and European solidarity exists.”

The EU opposes an IMF bailout because it would deliver a blow to the sovereignty of the monetary union, but they have also little willingness to raise funds for a bailout, said Stephen Lewis at Monument Securities in London.

Some argue it would also only be a temporary help.

Economists believe eurozone officials hope to duck the most politically difficult decision-making and simply wait for markets to tire of attacking Greece and other weak governments as it becomes clear that no member state will be allowed to default -- but that these countries will face the pain of tough fiscal measures for years to come.

One of the reasons politicians are loathe to discuss a bailout scenario is that once one country is rescued, markets would be tempted to simply move on to the next weak link in the eurozone economic chain. Avoiding so-called “moral hazard” would be key to avoid opening a Pandora's box of bailouts reminiscent of the past years' banking crisis.

David Owen, chief European financial economist at Jefferies Fixed Income in London, notes that an alternative to an outright EU bailout would be debt guarantees by the ECB, which throughout the credit crunch has been the main center for crisis management.

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