BRUSSELS – The eurozone's hope that it could enjoy a summer lull in its crisis has vanished as quickly as it appeared.
Last week, it seemed all sides would get a time out. Greece had avoided a default on its huge debts. Banks had agreed to roll over their holdings in Greek bonds, and finance ministers signaled that a second bailout would be agreed — though not before the autumn.
But while few observers believed that Europe's crippling debt crisis had been resolved, the good mood was shattered after ratings agency Standard & Poor's warned that the banks' plan to contribute to a new Greek rescue package would likely cause a default.
Rival agency Moody's then reignited market jitters in countries outside Greece when it slashed Portugal's credit grade to junk, saying a bank contribution plan would likely push it to take a second bailout.
And with Greece due for another review of its finances in August, the European Union's traditionally quiet summer period looks set for a repeat of the June drama.
That month, Greece's international debt inspectors spent weeks in Athens trying to save a faltering bailout while eurozone states fought about the role of private creditors and Greeks held days of violent protests.
At what was meant to be their last meeting before the summer, eurozone finance ministers on Monday face the challenge of rebuilding an eroding consensus on how to bailout Greece again.
"It will be a difficult Eurogroup, because positions are hardening," an EU official said of the meeting on condition of anonymity because of the sensitivity of the bank talks.
After rating agency Standard & Poor's said that even the market-friendly French model for a bond rollover would likely be seen as a "selective default" by Greece, Germany is pushing again for its original plan: a bond swap where, instead of buying new bonds, banks and other private investors would exchange their bonds for ones with longer maturities.
"If this French model — depending on how it is shaped — has this problem (of triggering a default rating) too, then we can go back to the model that we had proposed," German Finance Ministry spokesman Martin Kotthaus said Friday in Berlin.
A bond swap is commonly seen as a more radical option than a rollover, because it would be easier to verify how many investors are actually taking part and thus leave more room for naming and shaming.
"We have to walk a very narrow path between a voluntary contribution, and at the same time a substantial one," Kotthaus said.
The situation in Greece and the currency union's other struggling members — already bailed out Ireland and Portugal as well as Spain and Italy — is also set to overshadow the other main topic at next week's get-together: how to deal with banks that fail stress tests.
The results of EU bank stress tests are due next Friday and are seen as an important gauge for the region's credibility, after last year's exercise glossed over massive problems at Irish banks.
The EU's new banking regulator has stressed that this year's tests are much stricter and insists that states have the necessary backstops in place to deal with the results.
"Before the stress tests are published, the affected states have to be in a position to say 'this is how we will react,'" said a eurozone official. That involves boosting safety funds and coming up with models for an orderly restructuring in some cases, the official added. He was speaking on condition of anonymity because EU finance ministers, who will join their eurozone colleagues on Tuesday, still had to finalize the decisions on backstops.
However, fears over the potential costs for states to deal with failing lenders was already pressuring bank shares Friday, especially in debt-laden Italy, whose banks have so far weathered the crisis much better than their counterparts in other European countries.
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Geir Moulson in Berlin contributed to this story.
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