An impasse in Paris, a gamble in Athens: how Greece returned to crisis

Immigrants and asylum seekers, with their mouths taped, protest to demand for asylum in central Athens in this February 1, 2011 file photo. Greece triggered the regional financial crisis in 2009 when a far higher budget deficit than previously calculated emerged. The collapse of talks with creditors in Paris last November set off a month-long sequence of events leading to elections this week and proving Greece is still the region's weak link. The vote is expected to be won by Syriza, a far-left party opposed to the bailout, worrying investors and creditors alike. [Photo/Agencies]

ATHENS - After four years of economic sacrifices, Greece bet it could agree an early end to its international bailout. Instead a stand off with creditors in a Paris townhouse led to new political uncertainty and another euro zone storm.

Greece triggered the regional financial crisis in 2009 when a far higher budget deficit than previously calculated emerged.

The collapse of talks in Paris on Nov. 26 set off a month-long sequence of events leading to elections next week and proving Greece is still the region's weak link. The vote is expected to be won by Syriza, a far-left party opposed to the bailout, worrying investors and creditors alike.

At the tense meeting with Greek cabinet members to discuss exiting the four-year 240 billion euro aid package in December, a year early, International Monetary Fund and European Union officials insisted on extra cuts or revenues in the 2015 budget, according to people present.

Greek officials balked. The conservative-led government of Prime Minister Antonis Samaras had already imposed salary freezes, layoffs and special taxes. Any more austerity would be political suicide.

"They were giving us the impression that no matter what we did, they would not conclude the review," one Greek official said on condition of anonymity because of the confidential nature of discussions between Athens and its lenders.

"After that Paris meeting, we knew it was over."

EU and IMF spokespeople declined to comment for this story.

Heated discussions between Athens and its lenders are not uncommon but Greek officials said the uncompromising stance of the inspectors was rooted in something neither side would openly admit: uncertainty over whether Samaras's government would survive a presidential vote scheduled for February.

For the lenders, it would make little sense to declare the aid programme a success and disburse the final tranche of over 7 billion euros in aid if an anti-bailout government was soon set to take power and abandon the pledges made so far.

But for Samaras, failing to exit the deal early, as he had promised, left him without a weapon to win over lawmakers in the February vote. It also weakened him in the eyes of the electorate, driving voters into the arms of the Syriza party.

Trying to leverage his dwindling political capital, he brought the presidential vote forward to December, but then lost, triggering elections on January 25th.

Investors and Greece's lenders fear Syriza will turn back the clock on many of the reforms introduced over the past few years, weakening its position in Europe and possibly pushing it out of the euro zone currency area. Stocks tumbled and 10-year bond yields soared beyond 10 percent earlier in January.

"Syriza policies would be unlikely to satisfy the lenders," said Blanka Kolenikova, senior analyst at IHS Global. "Its policy programme would likely complicate Greece's negotiations with the creditors as it is unlikely to be received well."