Greek crisis
April 24, 2010
German Chancellor Angela Merkel, whose government has been reluctant to help Greece, declared that the EU-IMF rescue package would be activated only if the stability of the euro was threatened and Athens implemented tough cost-cutting policies.
Merkel insisted that Greece "must play its part in ensuring that Greece's finances return to a solid path ... The stability of our currency is the first priority."
The Greek government must negotiate a “credible savings program” with the European Commission and the International Monetary Fund, Merkel said. The IMF, the commission and the European Central Bank have to determine “whether an aid program for Greece is needed for the euro’s stability.”
“Only when those two conditions are met can we talk about specific aid, including the kind of aid and the amount,” Merkel told reporters in Berlin on Friday.
The chancellor's comments came after the EU said it did not see any "obstacles" and would react in a "rapid" manner to the request to activate a three-year debt rescue package worth up to 45 billion euros ($60 billion) in the first year. Athens is seeking the loan at concessionary interest rates of about five percent.
Three-year aid plan
Under the three-year plan agreed to in Brussels on March 25, the IMF will provide about ten billion euros in 2010, while eurozone nations have pledged 30 billion euros.
Athens needs to raise about 11 billion euros to service its debt by May 19. The government is believed to have only some two billion euros left in its coffers.
The precise details of the rescue plan are still being negotiated, but it is expected that Greece will receive aid from the IMF first.
"Greece is expecting 12 billion euros from the IMF at an interest rate of 2.64 percent. That is less than half the interest that Greece would pay on international markets. This would probably cover Greece's needs for the upcoming weeks," said Deutsche Welle correspondent Jannis Papadimitriou in Athens.
IMF to move swiftly
International Monetary Fund chief Dominique Strauss-Kahn said the fund would "move expeditiously."
However, he warned that Greece was in for a hard time and that the money was no handout. "The effort to be made by the Greeks is huge," Strauss-Kahn added.
"They have to understand that we are not punishing them for any kind of sin, we tried to help them to go back on track. And it will be very difficult, very long and very painful and it's in the interest of nobody to try and hide this reality."
Meanwhile, at the IMF and World Bank meeting in Washington, US Treasury Secretary Timothy Geithner urged the EU to roll out the bail-out and pressed Greece to implement reforms.
Germany wants rigorous controls
The money pledged by EU nations, however, could take some time to come. Germany, as Europe's largest economy, would be expected to provide about 8.4 billion euros.
Chancellor Angela Merkel faces strong public opposition to aid for Greece ahead of a key regional election on May 9 in which the center-right government's upper house majority is at stake.
Finance Minister Wolfgang Schaeuble also warned against granting Greece financial assistance too hastily. Schaeuble stressed that Greece must return to sound financial conditions, saying that in the case of renewed violations of the austerity program there would be no more aid.
The opposition Social Democrats (SPD) and Greens demanded that the banks be involved in the aid package. SPD leader Sigmar Gabriel said the chancellor should not be allowed to spend taxpayers' money without calling for the participation of German banks, which he said had also speculated in a big way in Greece. The Greens also insisted that Merkel should try to get private creditors on board.
Even among Merkel's coalition partners, the Free Democrats, some doubt whether the bail-out is at all necessary.
The Association of German Taxpayers meanwhile said the financial assistance was "a bitter pill for German taxpayers to swallow." But the manager of the association, Reiner Holznagel, added that the choice was between "plague and cholera." If Greece went bankrupt, there would be far worse consequences, he said.
Unprecedented crisis
The Greek debt drama has grown into the biggest crisis since the euro was adopted, sparking concerns that it could spread to other weak members of the single currency area.
Athens' credibility was severely undermined by a series of statements showing that it has misreported key data for the eurozone since it joined in 2001. The country has an overall public debt of about 300 billion euros and its public deficit is more than four times EU norms.
The IMF's involvement would also be a first for the eurozone. It has already helped out other European Union members like Hungary but the eurozone's rules are supposed to be enforced by the European Central Bank and member states. Critics have suggested that such an IMF role now undermines the credibility of the eurozone.
rb/ng/AFP/dpa
Editor: Nigel Tandy