AMSTERDAM // Hours after euro zone finance ministers in Brussels agreed on a second rescue package for debt-ridden Greece yesterday, doubts resurfaced about its effectiveness in stemming the financial crisis in the 17-nation bloc.
Rather than rallying on the news Greece would not for now default or leave the euro, most global markets fell and politicians sounded bleak.
The mood reflected a loss of faith in the bloc's ability to deal with underlying structural problems. Politicians and analysts expressed doubts the €130 billion (Dh631bn) package was enough, that Greece could re-establish economic growth and that other southern European countries were out of the woods.
The Dutch finance minister, Jan Kees de Jager, was the most vocal sceptic before and after the deal.
He has been the de facto voice of a bloc of northern European countries, including Germany and Finland, that have expressed the greatest misgivings about putting up money to save Greece.
"This remains a programme filled with risks," said Mr de Jager after the deal was announced.
"It is nothing to celebrate."
Mr de Jager emphasised the need for Greece to implement strict reform and austerity measures.
Greece is already reeling from six years of austerity and recession, with popular anger regularly boiling over into often violent street protests.
Athens has now also agreed to more European oversight over the implementation of the reforms and it will privatise its core state assets, including roads, ports and its mail service sooner than planned.
Because of the electoral sensitivity of many of these steps, the two main Greek parties were made to sign a letter promising to stick to the reform programme after elections scheduled for April.
International investors in Greece, mainly banks and equity funds, have agreed to write off more than half its private debt.
But even before the main European bailout deal was announced yesterday after 14-hours of talks, a document from the European Union and the International Monetary Fund was leaked that threw doubt on its viability.
The paper said the investors' so called "haircut" - taking a cut in what they are owed - may make Greece unattractive to outside capital for years and the austerity measures were likely to cripple Greek growth for maybe a decade.
Analysts said the deal might buy time to put mechanisms in place to make bailout packages for other at-risk countries such as Portugal, Spain and even Italy, cheaper and less painful but that Greece was unlikely to be rescued by it in the long run.
"At the end of the day for Greece, bringing back competitiveness is very difficult and we think chances are they are still going to exit the euro zone," said Rachel Ziemba of Roubini Global Economics in London.
The cloud over Europe also affected the international economy, said Mrs Ziemba.
For the Middle East that meant the withdrawal of European capital - deleveraging - from Gulf countries was likely to continue this year.
"I expect that we will continue to see more moderate deleveraging from the UAE, which is the economy most open to foreign capital," she said. The deleveraging was likely to be more gradual than in recent years because of steps by the European Central Bank to provide capital to the European banks.
The options for international partners to help Europe remain limited, she said. While some large Asian economies, such as China and Japan, were exploring options to provide more money through the IMF, this was ultimately bound to fall short.
"There is a limit to how much the IMF can provide because the US, its largest shareholder, is not able to provide more capital," said Mrs Ziemba.
Most international partners will insist Europe solves its own problems "given that there are enough resources in Europe to deal with this, or that a big part of dealing with those debt and competitiveness issues involve structural changes within Europe", she said.
Views from Brussels were not much brighter, with Guntram Wolff of the Bruegel economic think tank saying:
"We have a number of structural policy agendas in front of us and this will continue to weigh on financial sentiment and political stability,".
The euro zone will have to use the time bought by the Greek bailout to put in place a firmer fiscal union, he said. "We need to be heading for more euro zone oversight, more euro zone control. This is a natural counterpart to the shifting of billions and billions of euros across the euro zone," he said.
That was particularly important because Germany, the euro zone's largest economy and its effective paymaster, would not put up indefinitely with funding other countries.
"At some stage, Germany cannot be the paymaster anymore and that is exactly the reason we need a federal solution. We need a federal solution where taxpayers across the euro zone contribute," Mr Wolff said.
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