Germany Sets Conditions
German opposition to any assistance to Greece has been widespread and has caused a political rift in the euro zone. On Tuesday Germany signaled for the first time that it may accept EU aid for Greece but only if the International Monetary Fund is involved and EU nations accept tighter budget rules and regulations. A German official listed the conditions for EU aid to Greece;
The IMF would need to provide a “substantial contribution” to any aid package.
Greece would not be able to access credit markets.
European Union nations would have to negotiate and approve “additional instruments” to impose budget discipline over existing rules that enabled Greece to run up huge debts and deficits.
ECB and Eurogroup Oppose IMF Solution
An unnamed source in Chancellor Angela Merkel’s government said that Germany would only agree to EU aid for Greece if aid packages combined bilateral EU and IMF assistance. The senior official stated, “The condition for action, as a last resort, is that Greece’s financing on the capital markets is exhausted. There are first signs from various capitals that people could envisage financial co-assistance by the IMF.” EU sources said that France and Germany, which were co founders of the euro are attempting to reach a joint position to be presented at the upcoming EU summit. Talks have been described as “very sensitive”. European Central Bank President Jean-Claude Trichet and Eurogroup chairman Jean-Claude Juncker said that involving the IMF could send the message that the EU is incapable of resolving its own problems. Julian Callow of Barclays Capital stated, “The message from Berlin is crystal clear really, which is that Greece still needs to continue not just with consolidation but to test the markets out and if necessary use the IMF. The implication is that Germany will support Greece only if the IMF channel does not deliver.”
Greece’s Debt Hits 12.9% of GDP in 2009
Greece’s debt is expected to reach 120% of national output and hit 12.9% of the nation’s GDP in 2009 and Greece’s problems have shaken investor confidence in the multi nation currency. Credit rating agency Fitch said it does not expect a solution to Greece’s debt problems at the upcoming EU summit and also said that failure to reach an agreement would not prompt a downgrade. Chris Pryce, of Fitch said, “As long as the market is prepared to make the money available to the Greek government at any reasonable price — current rates are reasonable given circumstances although not desirable — we would have no immediate reason to change the rating.”
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