September 19, 2020

Merkel Resists Pressure on New Aid for Greece

Debt-ridden Greece wants international lenders to further ease terms of the €110 billion, or roughly $160 billion, bailout granted a year ago by the International Monetary Fund and the European Union, and is likely to need additional financing to plug a €27 billion funding hole next year.

On Tuesday, a day after Standard Poor’s cut Greece’s credit rating again, the country paid almost 4.9 percent to raise €1.62 billion of six-month treasury bills, up from 4.8 percent in April. Local investors bought up the bulk of the auction, Reuters reported from Athens.

The Irish government, in the meantime, is watching to see what concessions Greece might win in order to soften its own €85 billion rescue package.

But Mrs. Merkel, as leader of Europe’s strongest economy and the biggest contributor to the rescue package, gave no indication that Germany would be willing to grant more aid — and certainly not at next week’s meeting of E.U. finance ministers.

She said she would wait until officials from the E.U., the European Central Bank and the International Monetary Fund complete their assessment of Greece’s progress, particularly about how it was implementing its “bold reforms.” That report is due in June.

“First we need to hear what the status is,” Mrs. Merkel told the foreign press corps in Berlin. “Only then can I decide what, if anything, needs to be done. We don’t do Greece any favors by speculating about more aid.”

She added that Greece had made progress over the past year, and that it was always known that “it would be a difficult path.” But she said efforts to improve competitiveness and reduce deficits must continue. “Every country should continue with them,” she said.

Mrs. Merkel faced enormous pressure at home last year not to grant a single euro in aid to Greece until Athens had agreed to implement a tough austerity package and a radical savings program across the public sector.

While such public opposition has subsided, Mrs. Merkel now faces opposition within her own coalition. The Free Democrats, her junior partners, want to push through a motion at its party congress this weekend in Rostock to prevent any more rescue packages for indebted euro states.

Mrs. Merkel brushed aside this opposition, saying she was convinced the Free Democrats would support the overall package.

Indeed, with Philipp Rösler expected this weekend to be elected the new leader of the Free Democrats — replacing the foreign minister, Guido Westerwelle — and also taking over the Economics Ministry, Mrs. Merkel can expect more unity inside the coalition, government officials said Tuesday.

In Athens, there has been fury over reports published last weekend by the German news outlet Spiegel Online that said Greece was threatening to leave the euro as a bargaining chip to gain more leeway in paying back the debt.

“These scenarios are borderline criminal,” Prime Minister George Papandreou of Greece told a conference on the Ionian island of Meganisi on Saturday, Reuters reported. “I call on everyone, especially in the E.U., to leave Greece in peace to do its job.”

The German government denied there were discussions on Greece’s return to the drachma.

“There is no such question and such an issue was never raised for discussion at European level,” a government spokesman said .

Still, a new plan may include pushing back Greece’s budget targets, giving it additional aid and a mild restructuring of its sovereign debt, officials and analysts have said.

Irish officials insist that their country’s debt burden, expected by the I.M.F. to peak at 125 percent of gross domestic product in 2013, is manageable — for now.

A leading Irish economist wrote in The Irish Times newspaper on Saturday that the country’s debt would hit €250 billion by 2014, bringing Ireland’s debt-to-G.D.P. dynamics closer to those of Greece. The academic, Morgan Kelly, who has been dubbed Ireland’s “Doctor Doom” for his gloomy predictions, said the country faced bankruptcy because of the E.U. and I.M.F. bailout.

Mr. Kelly accused Patrick Honohan, Ireland’s central bank governor, of putting the European Central Bank’s interests over those of Ireland, which Mr. Honohan denied.

“The fact of the heavy debt and the growth of that debt is a serious problem and needs to be managed in discussion and in negotiation with our European partners,” Mr. Honohan said in an interview with the state broadcaster RTE.

Pat Rabbitte, the Irish minister for energy, told RTE that the interest rate of 5.8 percent that Ireland is paying on its European loans “must be reduced and in my own view the debt must also be rescheduled.”

Prime Minister Enda Kenny said in Dublin on Tuesday that talks on reducing that rate were under way with Ireland’s European partners.

E.U. finance ministers will take the issue up Monday and Tuesday in Brussels, and Irish officials are hoping for a reduction of one percentage point.

“After the meeting next week we will know whether a conclusion can be reached,” Mr. Kenny said, according to Reuters.

German officials, however, backed by the French, have been seeking some concession from the Irish in return for a reduction like the one given earlier to Greece, particularly regarding Ireland’s relatively low corporate tax rate. The Germans want the Irish to come up with some initiative, like agreeing to work on harmonizing the corporate tax base.

Article source: http://www.nytimes.com/2011/05/11/business/global/11euro.html?partner=rss&emc=rss

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