Merkel Says EU Considering Extension of Financial Aid Program for Greece
German Chancellor Angela Merkel said European Union leaders may be ready to extend Greece’s bailout program as part of a broader package to shore up faith in the euro, falling short of Greek calls to ease its lending terms.
Merkel, speaking to reporters in Berlin late yesterday after talks with Greek Prime Minister George Papandreou, said that any extension would have to be a part of the comprehensive package to fight the debt crisis being negotiated by the end of March. No decision has yet been made on such action, she said.
“There certainly is a discussion about whether to consider extending the running time of the Greek program,” Merkel said, noting that last year’s aid plan for Greece was limited to three years while Ireland’s bailout package, agreed last November, runs for seven years. “It’s one point that’s on the table.”
Merkel’s comments, made in response to a question about lowering interest rates for bailouts, fail to address the core demands of Greece and Ireland, the second euro-area country to get aid. The EU said in November that Greece would get an extra four-and-a-half years to repay emergency loans to match the seven-year term for the Ireland’s rescue.
“It’s difficult” to interpret where Merkel is positioned, Thorsten Polleit, chief economist for Germany at Barclays Capital in Frankfurt, said in an interview. She is likely “remaining ambiguous so as to increase Germany’s bargaining power” with Greece and other European governments.
Greek 10-year bonds opened little changed today, with yields at 11.76 percent. The cost of insuring Greek sovereign debt was higher than every country except for Venezuela and Pakistan as of Feb. 17, according to CMA prices for credit- default swaps.
Papandreou, in a speech in Berlin on Feb. 21, urged EU leaders to weigh changes to the 440 billion-euro ($603 billion) rescue fund, the European Financial Stability Facility, and its successor from 2013, the European Stability Mechanism, to allow Greece to buy back debt and pay lower interest rates on aid.
Papandreou yesterday compared the Greek debt-cutting program to “a sprint,” saying his government is committed to seeing it through to avoid Greece having to restructure its debt.
The task will be easier “if the Greek people can be convinced that their sacrifices are not in vain,” he said.
Papandreou was preceded by Ireland’s main opposition leader, Enda Kenny, who traveled to Berlin last week to tell Merkel of the need for Ireland to be allowed similar relief. Polls show Kenny as the favorite to become Ireland’s next prime minister after Feb. 25 elections.
There is a “need to work within the European Union to strengthen some of the mechanisms of financial support for countries which experience crisis,” European Central Bank Executive Board member Lorenzo Bini Smaghi said yesterday in a speech in Hong Kong.
As she prepares for an EU crisis summit on March 24-25, Merkel must balance public opposition to aiding indebted countries with the expectations of investors and other EU states that Germany takes the lead.
She also has to contend with resistance from her coalition to making German taxpayers shoulder any more of the cost. Germany was the biggest country contributor to last year’s Greek bailout and the EFSF rescue fund for debt-stricken states.
Germany will present initial proposals at a special EU summit called for March 11. Merkel said that improving European competitiveness will be a “central theme.”
Europe must become more competitive and everyone has a duty to stabilize the euro,” she said.
The euro rose 0.5 percent to $1.3720 as of 8:19 a.m. in London, after earlier climbing to $1.3730, the highest since Feb. 10.
Greece’s debts are likely to be more than 156 percent of gross domestic product when the aid package runs out in 2013, according to EU forecasts. Greece pays about 5 percent for aid.
Greek unions said they will keep ferries docked at ports, stop flights and shut down public services today in renewed protests against government measures to trim the public sector and loosen labor laws for private companies.
“Greece has started to put its house in order,” and the “path is not easy,” Merkel said, praising the debt-cutting and austerity measures by Papandreou’s government. Even so, “quite a bit still needs to be done.”
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