EU COMMISSION chief Jose Manuel Barroso has increased the stakes in his brinkmanship with German chancellor Angela Merkel over a rescue plan for Greece.
In the face of Dr Merkel’s continued resistance to the formulation of a rescue package at an EU summit on Thursday, Mr Barroso says EU leaders have to take responsibility in keeping with their conditional pledge last month to help the country “if needed”.
Uncertainty about the prospect of a rescue deal have weighed on the euro, which slipped yesterday to a three-week low against the dollar, and on Greek bonds, whose yields rose 11 basis points to 6.46 per cent yesterday.
While Greece’s debt crisis was sparked by a government forecast that its 2009 budget deficit would reach 12.7 per cent, the country’s central bank declared yesterday that the shortfall breached that projection to reach 12.9 per cent of national output.
The question has exposed deep divisions at the apex of European power, with Mr Barroso now essentially aligned against the German chancellor.
Dr Merkel’s position is complicated by rising opposition to any Greek rescue within her own administration and among the German public. Berlin has also suggested a financial role in any Greek rescue for the International Monetary Fund (IMF), something that Brussels does not want.
The chancellor’s chief spokesman said it remained open to EU leaders to decline to take a decision on aid because Athens had not asked for help.
Jean-Claude Juncker, Luxembourgish prime minister and head of the euro group of finance ministers, appeared to back Dr Merkel when he said yesterday that there was “no urgent need” for a decision this week. While Mr Juncker prefers a European solution, he said a plan involving IMF aid and bilateral loans from EU members remained possible.
Separately yesterday, European Central Bank president Jean-Claude Trichet said any aid to Greece should take the form of a loan with very stringent conditions. At the European Parliament, Mr Trichet also said aid should be given only if it included an element of stabilisation for the 16-country euro zone as a whole.
“We should not mix up a transfer or a subsidy with a non-concessional loan as those granted by the IMF,” Mr Trichet said.
“I think we can only be talking about a loan without any subsidy element. That needs to be extremely clear...That loan is the only possibility in our view.”
He also said verbal discipline by other euro zone members was of utmost importance to maintain fiscal discipline.
Mr Trichet called the Greek government’s deficit-cutting measures convincing, and that markets should progressively recognise their importance.
As talks continue in the run-up to the summit, Greek deputy prime minister Theodoros Pagnalos stoked tensions by attributing Dr Merkel’s reluctance to help Athens to the profits made by German banks on the back of the debt crisis.
“By speculating on Greek bonds at the expense of your friend and partner, by allowing credit institutions of the country to participate in this deplorable game, some people are making money,” Mr Pagnalos said.
Diplomats said his remarks were unhelpful, especially after he accused Germany last month of failing to properly compensate Greece for the costs of the Nazi occupation of the country in the second World War.
It is widely held that Greek prime minister George Papandreou cannot ask for aid until Dr Merkel clears the way for a deal.
Mr Barroso meets this morning with European Council president Herman Van Rompuy, who will chair the summit. Mr Van Rompuy’s spokesman declined to say whether he backed Mr Barroso’s push for a swift deal.
“The president’s clear view is that he would like to see a decision, whether it’s yes or no, this week,” said a spokesman for Mr Barroso. “People have to take their responsibilities in line with the February 11th commitment. What he doesn’t want see is continued uncertainty.”
Although Mr Barroso’s decision to publicly seek a agreement exposes him to the risk of being rebuffed by Dr Merkel, he has taken a calculated decision to demonstrate leadership rather than being seen to do nothing.
At a press briefing, Mr Barroso’s spokeswoman made light of his differences with Dr Merkel.
“He is hopeful at this point in time that an agreement can be reached.” - (Additional reporting Reuters)
