We're well into February, and there's still no deal to save Greece. The 20 March deadline, when Greece needs to pay back €14bn of government debt, is looming on the horizon.
Without the next aid package from the 'troika' (the European Commission, the European Central Bank and the International Monetary Fund), Greece will have to default.
So what's going on? So far, the Greeks have agreed with the troika to cut public spending in return for the funds needed. Also, the Institute of International Finance (which represents private holders of Greek government debt) has agreed to take a 70% 'haircut' on its holdings.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
So what's the problem? Well, now Greek resistance to reductions in pensions means that it needs to come up with another €325m-worth of cuts by next week. It also needs to get the deal through parliament - then stick to it.
And even then the entire deal could be vetoed if eurozone finance ministers don't believe that Athens can be trusted.
If the deal fails, then a formal Greek default - and quite possibly an exit from the eurozone - would probably follow. The bad news is that there's clearly quite a big chance that it will indeed fail. Here are three reasons why - and what it could mean for the rest of us.
Reason 1:The Greeks don't want the deal
The cuts to public spending have created a huge amount of public anger in Greece. You only have to check out the pictures on the front page of some Greek tabloids to see that the Greek people are not in love with Angela Merkel.
Greece's two largest unions have declared a national strike. While this won't directly stop the deal, it can make life very difficult for the government. For instance, strikes by tax collectors, which took place several times last year, would make it impossible to bring the deficit under control.
Also, up until now there has been unity between the major political parties. This has allowed them to support the deal - safe in the knowledge that everyone else has to take an equally unpopular stance.
However, approaching elections have seen Greek politicians increasingly distance themselves from the deal, with the aim of getting elected. Already a large number of MPs have come out against the deal, which is due to be voted on by Sunday. For example, George Karatzaferis, leader of one of the coalition parties, has stated that he "will not put up with the country being ridiculed".
Reason 2:Bondholders can still veto the deal
Another major hurdle is getting the agreement of enough bondholders. Although the Institute of International Finance represents firms holding roughly 65% of Greek debt, 95% need to agree.
The European Stability Fund could always try to bypass this requirement by buying the bonds from the bondholders, then swapping them for the new debt with the Greek government. However, if a blocking minority refused to sell then they would be forced to increase the price.
Reason 3:The lenders could pull out
As well as either Greece or bondholders balking, Brussels or Berlin could get cold feet. The nightmare scenario is that the Greek government agrees the deal, gets the bail-out, has bondholders take the hit - then quietly reneges on spending cuts. As Jeremy Batstone-Carr of Charles Stanley puts it: "Greece has made promises before and failed to deliver. What makes this time any different?"
Even if the deal works out, the results could be just as bad for the EU. Already people in Portugal, Italy and Ireland are looking for a similar deal - and it's not hard to see their point. After all, why should the Italians have to slog through austerity - or Ireland through 15% unemployment - if Greece can get help from both bondholders and Europe? A cynic might therefore believe that Merkel- and others - might secretly hope for the deal to collapse, to keep the other peripheral countries in line.
Europe is in for a tough time whatever happens
Events are moving so fast that it's tricky to say what is going to happen. However, even if the deal is agreed next week there is a strong chance it could collapse. Economic prospects for the eurozone as a whole are grim - with Standard Chartered expecting fourth quarter GDP data to show that all the euro countries - including Germany - are in recession. It's hard to make austerity stick when your people are already suffering. My colleague Tim Price has looked at ways to protect yourself against a European collapse - you can find out more by watching his video here.
The Price Report is a regulated product issued by Fleet Street Publications Ltd. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. 0207 633 3600
