EU moves towards a bailout of Greece ? - by Stephen Castle

In a tense game of brinksmanship, the European Union is moving toward the first bailout in the history of its common currency, which is expected to involve loan guarantees from the German and French governments to encourage their banks to buy Greek debt.

Even as the negotiations continue, the bloc is insisting that Athens impose further, painful austerity measures, in part to overcome political opposition in Germany to providing aid to the spendthrift Greeks.

During a brief visit, due to start Monday, Olli Rehn, the European commissioner for economic and monetary affairs, will press for more spending cuts and tax increases in Greece as a precursor to an emerging package of financial support. With no structure in place for dealing with a threatened default within the 16-nation euro zone, officials are making up the rules as they go along. That means that politics — as much as economics — is determining the outcome of the worst crisis in the decade-long lifespan of the euro, creating a kind of phony war in which battles are being fought by leaks and behind-the-scenes briefings.

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