May 27, 2024

Debt Talks Continue, Minus a Key Figure

Still, the absence of Dominique Strauss-Kahn, the managing director of the International Monetary Fund, cast a long shadow over the meeting, depriving ministers of the advice of a powerful and experienced European with a pivotal role on the global financial stage.

A former French economy minister, Mr. Strauss-Kahn was a member of the political generation that created the euro. He also had the respect of the euro zone’s most senior politicians and officials.

“He’s a good friend of mine,” said Jean-Claude Juncker of Luxembourg who is chairman of the euro zone finance ministers. “I didn’t like the pictures I saw on the TV this morning,” Mr. Juncker said at a news conference. “It was deeply sad and traumatic. But Mr. Strauss-Kahn is in the hands of the American justice. It’s not up to us to comment on this, but it makes me deeply, deeply sad.”

European officials insisted that it was business as usual without Mr. Strauss-Kahn, who was being replaced in Brussels by Nemat Shafik, a deputy managing director at the I.M.F.

At Monday’s meeting in Brussels, ministers nominated Mario Draghi of Italy as the next president of the European Central Bank, making his endorsement by European Union leaders a formality.

As also expected, they unanimously agreed to grant aid worth a total of 78 billion euros ($110 billion) to Portugal under a three-year program jointly administered by the European Union and the I.M.F.

Under the deal, the Portuguese authorities would encourage private investors “to maintain their overall exposures on a voluntary basis.” Although it was unclear how that encouragement would be offered, one possibility would be special guarantees to those who agreed to retain Portuguese bonds.

Olli Rehn, the European commissioner for economic and monetary affairs, said that the interest rate charged on loans to Portugal would be “above 5.5 percent but clearly below 6 percent.”

But the most difficult discussions came over Greece, which was urged to speed up its promised 50 billion euro privatization program before a second rescue. Ministers discussed putting Greece’s privatization project in the hands of an external agency.

While Mr. Juncker ruled out the possibility of restructuring Greek debt, he said that he “would not exclude in a definite way a kind of reprofiling,” or a voluntary easing of loan terms. The idea, however, was rejected by France’s economy minister, Christine Lagarde.

Mr. Strauss-Kahn’s arrest was not discussed formally at the meeting, but the implications of the case dominated debate in the corridors.

Most diplomats expected him to leave the I.M.F. soon to run for president of France in elections next year. But now, he may depart under a cloud, which increased concerns over the cozy arrangement that had allowed for a European to lead the I.M.F.

Even with Mr. Strauss-Kahn at the helm, Europeans felt a hardening of attitudes at the I.M.F., where concerns have grown in North America about Europe’s internal policy divisions over the debt crisis.

Meanwhile, some in the developing world are concerned about the amount of effort the I.M.F., which has traditionally devoted resources to their problems, is having to expend on Europe, said a European Union diplomat who was not authorized to speak publicly.

Chancellor Angela Merkel of Germany defended Europe’s claim to keep the top job at the I.M.F. for now, saying it made sense given its role in tackling the euro zone crisis, Reuters reported from Berlin. However, she said it was not yet time to discuss a successor.

“Generally, we know that in the medium term developing countries certainly have a claim both to the post of I.M.F. chief as well as World Bank chief,” Mrs. Merkel said. “I believe, however, that in the current phase, there are good reasons for Europe to have good candidates ready.”

That view was echoed in Brussels by Didier Reynders, the Belgian finance minister. “It would be preferable if we continued to hold these posts in the future,” he said.

As a former French government minister, Mr. Strauss-Kahn has been a strong presence and is someone who feels at home in the complex world of European Union policy making.

A Frenchman who speaks English and German, he was well placed to play at Europe’s top table. He was scheduled to meet Mrs. Merkel on Sunday before his arrest.

Technical work was continuing with officials from the I.M.F., the European Central Bank and the European Commission ahead of a likely new package of aid next month. The I.M.F. is providing about a third of the original 110 billion euro loan package for Greece.

But European officials are finding it increasingly difficult to quash speculation that Greek debt will have to be restructured.

“Of course we discuss all kinds of topics, including restructuring,” said Jan Kees de Jager, finance minister of the Netherlands, as he arrived at the meeting Monday. “But in public, we are very reluctant about discussing and debating restructuring.”

On Sunday, Wolfgang Schäuble, the finance minister of Germany, suggested that extending the maturities of Greek bonds could be a way to help ease the country’s debt crisis if private investors participated..

The I.M.F is believed to be more positive toward a restructuring of Greek debt than the European Central Bank and particular European governments, prompting some speculation that Mr. Strauss-Kahn’s absence might affect policy.

However, Daniel Gros, director of the Center for European Policy Studies, said that the effect was most likely to be felt over the longer term.

“They have pretty much made up their minds that nothing on restructuring happens before 2013,” he said. “If they want to keep their promise then the voice of the I.M.F. might be relevant next year. And maybe the next I.M.F. managing director will be clearer in saying you in Europe got us into this and we want to get our money back.”

In the meantime, Mr. Gros said, the message from leading governments was that the euro zone would do what was necessary, though the details of another aid package for Athens, and what Greece could offer in return, were not yet clear.

Article source:

Speak Your Mind