Europe's leaders remained locked in dispute yesterday over the size of the eurozone bailout funds, as it emerged Germany is pushing for Greece to be stripped of powers to control its budgets.
The move to make Greece hand over control of budgetary policy as
the price for agreeing a €130bn rescue package would represent a
humiliating blow to Greece's hopes of controlling its own destiny
but could offer a means of staving off financial ruin.
The proposal was made by Germany as the euro group considered
how extra finance should be offered to countries such as Greece
which need support but are "continuously off-track" with their
budgets. The idea, a source told Reuters, would be that European
institutions already operating in Greece should be given "certain
decision-making powers" over fiscal policy.
Details of the proposal emerged as finance ministers met at the
World Economic Forum in Davos where France and Germany publicly
disagreed over the size of the "firewall" needed to protect
European economies. François Baroin of France said Europe's bailout
resources urgently needed to be boosted to be able to rescue Spain
and Italy, should that become necessary. "We consider that the
higher the firewall, the less it will have to be used. This is a
deterrent," he said.
His call came as it was announced that Spain's jobless total had
passed five million. Last night the eurozone economy was dealt
another blow when Fitch, the ratings agency, downgraded five
European nations including, Italy and Spain, leaving Germany as the
last major eurozone economy that maintains a triple-A rating.
Mr Baroin wants the €500bn European Stability Mechanism – the
successor to the European Financial Stability Facility – to be
introduced in the middle of this year. "If we can bring it forward
even faster we will do it," he said. The idea has been mooted of
running the two funds in tandem, which would boost the EU's bailout
resources to about €750bn.
However, Wolfgang Schäuble, the German finance minister,
rejected the idea that boosting the size of the rescue pot was
either necessary or desirable. "You can have it any figure," he
said. "The firewall will not work unless you solve the real
problems."
More positively, the EU monetary affairs commissioner, Olli
Rehn, said Greece was "very close" to a deal with a large group of
its bondholders. "The next three days will be very crucial for the
future three years," he said. "In other words, we're just about to
close a deal on private sector involvement between the Greek
government and the private sector community." He added that the
deal would come "if not today [Friday], then over the weekend" and
"preferably in January rather than February".
The Institute of International Finance – representing banks in
the talks – has been in talks with the government since last
October to reach an agreement. The IIF is said to have dropped its
demands for the interest rate of its new, devalued, Greek bonds
from 4 per cent to 3.75 per cent, getting closer to the 3.5 per
cent Athens wants to pay. Greece needs the deal before a €14.5bn
bond repayment on 20 March that it cannot afford falls due and tips
the nation into default.
But the chairman of eurozone finance ministers, Jean-Claude
Juncker, also warned yesterday that eurozone member states will
probably have to increase their financial support for Greece if a
deal between Athens and the private sector is concluded.
There have been suggestions in recent days that the European
Central Bank, which has acquired about €45bn of Greek bonds, should
write down the value of its holdings to increase the size of
Athens' debt forgiveness package. This, however, has been fiercely
resisted by Germany.
George Osborne, who was also in Davos, said European leaders
were doing too little to stabilise the eurozone. "Frankly, it is
not enough. Everyone knows it is not enough," he told a lunch of UK
business leaders. He added that the inadequacy of the actions taken
so far was undermining the health of the British economy.
Mr Osborne indicated that Britain would be prepared to increase
its contribution to the resources of the International Monetary
Fund so long as European governments were prepared to increase
their own bailout resources first. "The world needs to see the
colour of their money before it contributes any more" he said.
The money men: Key figures at the forum
'Frankly, it is not enough. Everyone knows it is not enough'
- George Osborne, Britain
'Do we know that this money is going to help the real
economy?' - Mario Draghi, European central bank
'The higher the firewall, the less it will have to be used.
It will be a deterrent.' - Francois Baroin, France
'The firewall will not work unless you solve the real
problems' - Wolfgang Schäuble, Germany
Comments