Germany is at loggerheads with other eurozone countries over how much interest to charge debt-ridden Greece if it calls on the emergency loans package agreed in Brussels last month.
The dispute could hold up swift agreement about technical details of a safety net agreed by European leaders and seen as crucial to reducing the risk that Greece will need to call on the loans.
Eurozone leaders agreed at the end of March to offer Greece an emergency loan package from the International Monetary Fund and the eurozone if it was unable to raise debt in the market, but they insisted the interest rate on the European portion of a bail would be unsubsidised.
Most eurozone nations are prepared to offer loans at 4 to 4.5 per cent, the rate paid by the eurozone’s other other big debtors, Ireland and Portugal, EU officials told the Financial Times. But Germany says Athens should pay 6 to 6.5 per cent, the rate it pays on its 10-year bonds.
Donor nations would be able to refinance money lent to Athens at the lower rate without themselves losing money. Germany, these officials said, took the view “unsubsidised” rates meant Greece could only borrow at rates it last paid on the market. Berlin fears a veto from its Constitutional Court if it agrees to cheaper financing.
“If you say Greece’s whole consolidation effort is endangered by it paying such extremely high spreads [against German government bonds] you have to ensure the spread comes down,” one senior EU official told the FT.
“But the Germans say the Greeks have lived beyond their means, they must solve their problems themselves” – and thus pay 3 percentage points more in interest, or twice as much, as Berlin pays on its 10-year bonds.
Greece is pushing for an emergency-loan rate of 4 to 4.5 per cent. “A comparable rate to Portugal is what we’d like to see,” an official said – even as hope is growing in Athens that help might not be needed until later this year.
Like other eurozone capitals, including Berlin, Athens hopes that swift agreement about the details of emergency funding could push Greek rates down and reduce the likelihood of Greece having to tap the emergency reserve.
But even if Greece manages to raise €10bn for its budget in May – and billions more during the year – EU officials fear 2011 and 2012 will prove even tougher for a country with a meagre economic base that might fail to grow.
While officials in several countries said the sum of a package had not been officially set, they said the IMF portion could hit, but not exceed, €10bn – 10 times Greece’s so-called quota at the Washington institution.
Access to the IMF’s standby arrangements should allow Greece to borrow just under a third of this sum at 1.25 per cent, with interest most probably rising to 3.25 per cent for the remaining IMF amount, EU officials said.
Given that European Commission officials said in late March that the eurozone would shoulder two-thirds of any aid, this suggests that combined IMF-eurozone aid could hit €30bn. But EU officials said a total had not been set.
Copyright The Financial Times Limited 2010. You may share using our article tools. Please don’t cut articles from FT.com and redistribute by email or post to the web.