Deeper austerity for Greece? Photo credit: John Delta

After triggering the promised financial bailout package, Greece faces a new challenge: Germany is demanding that the debt-laden country enact painful new austerity measures.

Things just keep getting worse for Greece. Last Friday, following a week of bad economic news, Prime Minister George Papandreou was forced to ask for the bailout package. Now, the markets are reacting poorly after German Chancellor Angela Merkel demanded that Greece enact deeper and more painful austerity measure in return for the badly needed package. The euro lost the loft it initially gained after Greece asked for the package and Asian stocks fell.

Greece has asked both the International Monetary Fund and her eurozone sisters for roughly €45 billion in loans to pay off its debts. The IMF money is likely to come through soonest – essentially since Greece’s first major debt comes due in three weeks – but the eurozone money is being held up by Germany. Germany, as the economic power in the eurozone, is set to provide €8 billion, much to the chagrin and outright anger of the German people. Merkel has asked for deeper austerity measures in an effort to appease her own voters – and, some might argue, in an effort to punish Greece for its profligacy.

Patience Wheatcroft, columnist for The Wall Street Journal, pointed out what’s at the heart of the market’s reaction to Merkel’s demands: “Ms. Merkel’s attitude is exacerbating the markets’ sense of panic over the Greek debacle. The prospect of default on its debt is now less than three weeks away yet the country’s euro-zone colleagues seem to be growing in their scepticism about whether Greece deserves the help it is requesting.” Austerity, she said, is easy to preach – but hard to do.

Especially hard these days. The measures the Greek government has already proposed – and that eurozone leaders say are not deep enough – have resulted deep unrest within in Greece, with public sector workers perpetually on strike. Moreover, some critics claim that austerity measures probably aren’t going to be enough to save the nation from defaulting.

Others, however, claim that Merkel is right to demand more of Greece. The Financial Times, in one of its leading editorials today, wrote that Merkel’s demands, though “political positioning”, are nonetheless “reasonable.” “Greece must take responsibility for its own fate. Athens has been too faint-hearted about wielding the axe,” the paper claimed, noting that Greece’s proposed cuts to public sector pensions aren’t nearly deep enough. “Such measures would be painful in the best of times. Greece missed its opportunity for structural reform. These are now the worst of times. There are no longer any easy options.”

Of course, others also say that even a bailout is too late to save Greece, especially as the bailout itself is taking so long to arrive and restructuring Greece’s debt is looking increasingly likely – painful, but likely. Hans Lorenzen, credit strategist at Citigroup, told The Financial Times that immediate assistance to Greece is needed, at lower interest rates than initially proposed, to stop the snowball. But in the long term, the eurozone needs a European Monetary Fund.