LOAN PACKAGE:EU AND IMF officials are racing to conclude a €45 billion rescue plan for Greece amid German scepticism and wider concern that the loan package may not be big enough to settle the country's debt crux.
Anxious to prevent the Greek crisis from contaminating the debt of other euro weaklings such as Spain, Portugal and Ireland, officials hope to hammer out the deal this week.
Although Greece may not seek to draw down credit until an €8.5 billion debt falls due on May 19th, any delays could undermine confidence in the endeavour. But dilemmas persist, not least concerns that new austerity measures to rein in a gaping deficit will intensify recession and dim Greece’s power to service its €300 billion of debt.
While a rescue deal will provide a short-term balm for Athens, investors worry that the plan won’t be big enough to avert a restructuring of Greek debt down the line. The Greeks say that won’t happen.
“Any notion of restructuring is off the table for the Greek government, has never been put on the table of negotiations, and has never been part of any suggestion or proposals made by the IMF to Greece,” said finance minister George Papaconstantinou.
Anxiety about the plan’s scale is not confined to the markets. Canadian finance minister Jim Flaherty said “some countries think it’s not enough”, telling reporters that the doubters include “some of the European countries” in the G20 group.
The European G20 members are Germany, France, Italy and Britain, although Mr Flaherty didn’t say who among them believes the rescue as planned isn’t big enough. “There is concern about making sure that the package is enough so that it’s a one-time event.”
Flaherty and Papaconstantinou were speaking at the spring meeting in Washington of the IMF, which is dictating terms for its €15 billion share of the loan package.
For Greek prime minister George Papandreou and his people, this means yet more grinding cutbacks are in store.
Even though formal approval for the plan remains in the gift of euro group leaders and the IMF board, any failure to trigger the mechanism would create chaos. Thus US treasury secretary Timothy Geithner signalled Washington’s support on Saturday, all but giving the IMF the green light for its involvement.
That attention had turned to the US capital just as the Greeks sought to activate aid has deep symbolic resonance, for many senior European figures wanted an EU solution exclusively.
But that’s not the way German chancellor Angela Merkel saw things. She faces a crucial regional election on May 9th and has a mountain to climb to win over Germans who say their country, which might have to lend more than €8 billion this year to Greece, should have no truck with the rescue.
With legislation needed to allow Germany to participate in the scheme, finance minister Wolfgang Schäuble has invited parliamentary leaders for talks in Berlin today to try to speed up the process.
Mr Schäuble made clear the requirement for further cuts from Athens, telling Bild that triggering the rescue will be conditional on Greece agreeing a “tough” restructuring programme. “This depends entirely on whether Greece continues in the coming years with the strict savings course it has launched.”
The message from Paris was more or less the same, although finance minister Christine Lagarde said helping Greece was necessary for the euro zone’s stability. “We want to stabilise. But that doesn’t prevent us from being firm, and we will need to watch the results very carefully.”
