economics

March 15, 2010

Athens Aims to Persuade Germany That Help Is Essential As Greece outlines more measures to fix its finances, Merkel sees less urgency to risk taxpayer money on a bailout

Filed under: Uncategorized — ktetaichinh @ 10:15 pm
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A Greek default could lead to capital flight from other indebted European countries, including Spain, crippling vital German export markets. But the calculation in Berlin is that the euro zone’s crisis isn’t severe enough yet.

German approval is crucial for euro-zone aid because Germany is the bloc’s biggest and financially strongest country. France, which at times has sounded more open to helping Greece quickly, has said it won’t support any aid unless Germany agrees.

Germany and France are still prepared to rescue Greece, likely through state-owned banks, according to people familiar with the matter, but view such a move only as a last resort.

Ms. Merkel views the meeting with Mr. Papandreou as a way to soothe recent tensions between the two countries over the crisis and compliment Greece for the progress it has made with its austerity program.

The planned meeting of the two countries’ leaders “is not about aid measures for Greece … but about good relations between Germany and Greece,” Ms. Merkel said on Wednesday.

In Berlin, “Papandreou will say: ‘Help us to borrow at normal interest rates. Don’t leave us so exposed to speculators,’ ” an aide to the Greek leader said.

Greece isn’t seeking a handout, but it would like credit guarantees from Germany and other euro-zone peers, so that it can tap capital markets more easily, the aide to Mr. Papandreou says.

That argument is unlikely to sway the German leader, according to people familiar with Ms. Merkel’s thinking.

“We aren’t interested in bailing out Greece’s interest-rate spreads—only in preventing Greek insolvency,” says a senior German official.

In addition, credit guarantees would also be perceived in Germany as a bailout, because—like direct lending—they would leave German taxpayers holding the risk of a Greek default down the road.

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