12.3.2010 Greece debt: EU agrees bailout deal
The Guardian, http://www.guardian.co.uk/world/2010/mar/12/eu-agrees-greece-bailout#history-link-box
Exclusive: Germany plays pivotal role in potential eurozone rescue package for Greek debts
Protesters wearing masks during a demonstration in central Athens, against government austerity measures. Photograph: Vassil Donev/EPA
The eurozone has agreed a multibillion-euro bailout for Greece as part of a package to shore up the single currency after weeks of crisis, the Guardian has learnt.
Senior sources in Brussels said that Berlin had bowed to the bailout agreement despite huge resistance in Germany and that the finance ministers of the «eurozone» – the 16 member states including Greece who use the euro – are to finalise the rescue package on Monday. The single currency’s rulebook will also be rewritten to enforce greater fiscal discipline among members.
The member states have agreed on «co-ordinated bilateral contributions» in the form of loans or loan guarantees to Greece if Athens finds itself unable to refinance its soaring debt and requests help from the EU, a senior European commission official said.
Other sources said the aid could rise to €25bn (£22.6bn), although it is estimated in European capitals that Greece could need up to €55bn by the end of the year.
Germany, the EU’s traditional paymaster, but the most reluctant to come to the rescue of a fiscal delinquent in the current crisis, has played the pivotal role in organising the rescue package, the sources added.
«There have been quite intensive preparations under the eurogroup. We have the ways and means to do it,» said the senior official, asking not to be named because of the subject’s sensitivity.
«It will be a co-ordinated approach of bilateral contributions [between EU governments] … A bilateral contribution can be a loan or a loan guarantee. The guarantees will facilitate the kind of funds potentially needed in this context.»
The rules governing the operation of the single currency proscribe a bailout for a country on the brink of insolvency. Berlin, in particular, has been worried that any bailout of Greece could be challenged in its constitutional court.
The senior official said the agreement – which will not involve any contribution from the UK taxpayer – had been tailored to respect the bailout ban and avoid a supreme court challenge in Germany.
Alongside the financial relief package for Greece, the European commission is rushing through tougher rules for the eurozone, using powers conferred by the recently enacted Lisbon treaty to try to establish a system of rigorous «budgetary surveillance» of all 16 participating countries. The aim is a new regime of «reinforced economic policy co-ordination» in the EU.
«This is the essential lesson that has to be learned from the Greek case,» Olli Rehn of Finland, the new commissioner for economic and monetary affairs, told the Guardian (and four other European papers).
«The Greek case is a potential turning point for the eurozone,» said Rehn in the interview. «If Greece fails and we fail, this will do serious and maybe permanent damage to the credibility of the European Union. The euro is not only a monetary arrangement, but a core political project of the European Union … In that sense, we are at a crossroads.»
While ready to bail out the Greeks if only on terms of «rigorous conditionality», European leaders are hoping that the rescue will not be needed, that the draconian package of austerity measures announced by Prime Minister George Papandreou will be enough to calm the markets and stabilise the euro.
EU leaders are to rule next week on whether Papandreou is doing enough to slash the 12.7% budget deficit by four percentage points this year, part of his ambition to cut the deficit by 10 points over three years.
Rehn said he would unveil new proposals next month, enshrining a new single currency regime of «rigorous surveillance of national budgets» and that Eurostat, the EU’s statistical agency, would need to be given formidable new auditing powers over the books of eurozone member states, a demand that may be resisted by EU governments.
«That’s the hard core of our proposal. [The surveillance] should be automatic,» said Rehn. «We have an immediate corrective instrument for the Greek case, plus another framework to prevent new Greek crises.»
Inside the commission, officials are confident that Wolfgang Schäuble, the German finance minister, supports the tough new regime being plotted. Schäuble, who uses a wheelchair and is currently in hospital, and will not attend key meetings in Brussels on Monday and Tuesday.
Schäuble enjoys a longstanding reputation as a European integrationist and is said to have played a central role in shaping the Greek bailout plans despite widespread hostility to any such moves in Germany.
Over the past week, he has sparked a major debate by calling for a European Monetary Fund to underpin the currency, and yesterday stoked more controversy by proposing that serial sinners in the eurozone could be expelled from the single currency club.
The EMF concept is for the long-term and a new rule enabling expulsion from the euro club would require the Lisbon treaty to be re-opened, a nightmare for most after labouring over it for almost nine years.
While senior figures in Brussels believe that Chancellor Angela Merkel and Schäuble are intensely serious about establishing an EMF, they also suspect they are using the idea to assuage hostile public opinion in Germany and «prepare a short-term fire brigade operation for Greece».
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