Tuesday, March 23, 2010

Germany sets conditions for Greek rescue

Berlin has indicated what conditions it would require to participate in a Greek rescue. Germany as come under a lot of pressure to come to Greece's aid, while facing huge opposition at home. It appears that Merkel's solution is to agree to consider aid while setting impossible conditions. There is simply no way that the EU treaty can be renegotiated at all, let alone quickly.

From today's FT:
A senior government official in Berlin said there would be no agreement at this week’s EU summit on a specific rescue package for the debt-strapped Greek government. If there were to be agreement on a “mechanism” to provide such assistance, he said, it could only be triggered once Greece had exhausted its capacity to raise money on the international capital markets; the IMF had agreed to make a “substantial contribution” to a rescue package; and the EU members had agreed to negotiate new rules to prevent any reccurrence of such a debt crisis. The German demand that could meet the most resistance from its EU partners is the insistence that new rules to enforce budget discipline should be negotiated, even if that requires treaty changes. Both France and the UK are passionately opposed to any such suggestion of reopening treaty negotiations.

So it would appear that Berlin's conditions are impossible. This does not mean that Greece will ultimately be allowed to default, but it does suggest that a swift and harmonious rescue will be difficult to achieve.

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