Eurozone's Greek aid is full of unanswered questions

A joint statement by finance ministers of the 16 nations that share the single currency was meant to convince financial markets that Athens can count on tangible support, if needed, beyond the verbal backing offered by EU leaders in February.

But the wording was so ambiguous and short on detail that it is hardly surprising the risk premium investors charge for holding Greek debt rather than benchmark German bonds barely blinked on Tuesday, holding at more than 300 basis points.

“(The Eurogroup) clarified the technical modalities enabling a decision on coordinated action and which could be activated swiftly in the case of need,” ministers said in a statement issued late on Monday.

They still seem to be hoping such “constructive ambiguity”, combined with praise for Greece's tough austerity measures, will be enough to talk down Greek borrowing costs without forcing them to dip into taxpayers' pockets for a bailout.

The language appeared deliberately vague, both to avoid a market test of the solidity of the arrangement and perhaps to avoid angering German voters who strongly oppose any bailout for Greeks, who enjoy earlier retirement and bigger pensions.

The risk is that ministers are setting up a game of chicken with the markets, with a highly uncertain outcome.

No sooner was the ink dry than the chairman of eurozone finance ministers Jean-Claude Juncker said only a decision from European Union leaders could set the mechanism in motion, while Germany, Europe's main paymaster, said it did not expect any such decision at the next summit on March 25-26.

Italy's Giulio Tremonti, supported for the first time by a German government source, said recourse to International Monetary Fund lending should not be ruled out. That flies in the face of political efforts to solve the problem within the euro family.

Greece says it cannot go on borrowing at 6.25 percent or more and expects to be able to borrow at the same rates as other eurozone countries, despite the fact that its debt pile, at 120 percent of national output, is twice the EU reference level.

The eurozone statement effectively squelched that hope, making clear any aid would come at a hefty premium and on draconian conditions to serve as a deterrent.

“The objective would not be to provide financing at average euro area interest rates, but to safeguard financial stability in the euro area as a whole,” the ministers said.

“The proposals would ... provide strong incentives to return to markets as soon as possible.”

Since EU leaders keep stressing that Greece has not asked for financial help, the implication is that Athens would have to make a formal request to activate the mechanism.

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