Low-graphic news index |
Tuesday, August 21, 2012 - Page updated at 08:00 a.m.
Germany: Greece must follow through with reforms
By GEIR MOULSON
Europe's leaders are gearing up for a high-stakes week of financial diplomacy that could determine Greece's future - and the stability of the 17 countries that use the euro.
The first round of the talks began Monday when Germany's foreign minister, Guido Westerwelle, hosted his Greek counterpart, Dimitris Avramopoulos, ahead of a meeting in Berlin on Friday between their countries' leaders, Chancellor Angela Merkel and new Prime Minister Antonis Samaras.
French President Francois Hollande visits Berlin on Thursday for discussions with Merkel and then will meet Samaras in Paris on Saturday. Jean-Claude Juncker, the Luxembourg prime minister who chairs the eurozone finance ministers' meetings, is due in Athens Wednesday.
Meanwhile, Greece's finance officials were working to hammer out (EURO)11.5 billion ($14.19 billion) in spending cuts necessary for it to continue receiving the international funding that is protecting it from bankruptcy.
The eurozone is awaiting a report, expected next month, on Greece's progress in implementing reforms and austerity measures demanded in exchange for two massive bailout packages. The report is being compiled by the so-called "troika" - representatives of the European Union, European Central Bank and International Monetary Fund.
Greece has been dependent on two multi-billion international bailouts from other eurozone countries and the IMF since its debt crisis broke in 2010. But despite taking a series of harsh austerity measures that saw salaries and pensions slashed and repeated rounds of tax hikes, the results have not been what European and Greek officials hoped for.
The country has fallen behind on implementing the reforms and austerity measures, fueling impatience in Germany and other eurozone countries. Should the troika's report find that Greece has not been meeting its bailout commitments, the country could face the prospect of having its funding cut off. This would force the country into a chaotic default on its debts and eventually out of the eurozone - a move that would further destabilize the currency bloc and threaten the economies of countries such as the U.S. and China.
Samaras' fragile three-party coalition government, formed after two elections in May and June, has said it hopes to renegotiate parts of the unpopular bailout conditions, mainly seeking an extension in the two-year austerity deadline. But German officials and lawmakers have made it clear they have no appetite for granting Greece more time to comply with the terms of its rescue packages or other concessions.
Following the meeting with his Greek counterpart Monday, Westerwelle said Greece needs to carry out its existing reform program and insisted anew that "a substantial softening of the agreements and the agreed reforms is not possible from the German government's point of view."
He added that Germany "wants us to remain together in the eurozone" but that "the key to success lies in Athens."
Neither Westerwelle nor Avramopoulos would be drawn on whether Greece can or should get more time to fulfill its austerity and reform targets, insisting that they would wait for the troika report.
Avramopoulos underlined Greece's will to implement its reform plans and cautioned against careless talk about Greece's future. "We need responsibility," he said through an interpreter. "There must no longer be ... the speculation about Greece's position in the euro or outside the euro."
Here is a round-up of what else is happening around Europe:
Greece's Finance Minister Yannis Stournaras met with his deputy ministers and Labour Minister Yannis Vroutsis to hammer out measures to cut government spending by (EURO)11.5 billion ($14.19 billion) so it can continue receiving the international funding.
The officials aim to secure the measures for 2013 and 2014 in time for a visit to Athens on Wednesday by Juncker.
The measures are seen as key for the "troika" to agree to give Greece the next bailout installment. The country's debt stands at more than (EURO)300 billion, and the economy is struggling through a fifth year of recession with unemployment at above 23 percent.
Still, underlining the uncertainty about Greece's future, the German weekly Der Spiegel reported this weekend that an initial assessment by the troika inspectors suggests Greece may need to cover a financing shortfall of up to (EURO)14 billion over the next two years, rather than (EURO)11.5 billion. It did not cite sources. Avramopoulos said he couldn't confirm that.
Germany's central bank, the Bundesbank, has again stressed its skepticism toward proposed purchases government bonds by the European Central Bank.
ECB President Mario Draghi said on Aug. 2 that the bank might make such purchases to lower the high borrowing costs faced by some governments, if those countries first applied for help from the eurozone's bailout fun. Draghi noted that the Bundesbank was the sole dissenter to the plan.
High borrowing costs on government bonds are threatening to ruin the finances of Spain and Italy, which are struggling to control their debts while their economies are in recession. If the borrowing costs stick at a high level - many market-watchers put that at 7 percent - a country would find it increasingly difficult to maintain its bond repayments and would have to turn to the other eurozone countries and the IMF for assistance. Because Italy's and Spain's economies are so large - the third- and fourth-largest in the eurozone - many analysts are worried that a request for a bailout would stretch the eurozone's finances to breaking point and plunge the region further into recession.
The German national central bank said in its monthly report Monday that it continues to "critically assess" such purchases and that they would carry "substantial risks."
The Bundesbank has one seat on the ECB's 23-member governing council, but has added clout because it has considerable public support among economists, legislators and the general public in Germany.
Spain's borrowing costs dropped sharply Monday following remarks made by the country's Economy Minister, Luis de Guindos.
Over the weekend, de Guindos said the ECB's bond-buying campaign should not be limited in amount or time. In early afternoon, trading the interest rate on Spanish 10-year bonds the secondary markets stood at 6.29, down 15 points for the day, although it had been down by as much as 30 points from Friday's close.
Ignacio Cantos of investment advisers Atl Capital attributed the drop to the market anticipating that the European Central Bank's program would match de Guindos' expectations.
Elena Becatoros in Athens, David McHugh in Frankfurt and Daniel Woolls in Madrid contributed to this article.
Copyright © The Seattle Times Company
Low-graphic news index
Graphic-enabled home page