Greek deal may need more EU funding, says Rehn

EUROPEAN COMMISSIONER Olli Rehn became the first EU official yesterday to concede that a debt-restructuring deal between Greece and its creditors may need to be topped up with further European funds.

With talks between Greece and its creditor banks in their third week, Mr Rehn’s public remarks about a potential funding shortfall reflects private concerns expressed by German chancellor Angela Merkel and other leaders in Davos.

In the Swiss ski resort, with snowfall breaking 50-year records, Davos delegates had their choice yesterday between gloomy or chilly, from the euro zone to the Middle East.

“We are preparing a package which will pave the way for a sustainable solution for Greece,” said Mr Rehn to Reuters television.

“In that package, yes, on the basis of the revised debt sustainability analysis, there is likely to be some increased need of official sector funding, but not anything dramatic.”

Pressed, he said the burden-sharing would be spread among “the official sector and European institutions” – of which the European Central Bank is the only European institution to hold Greek debt.

Outstanding agreement on a second bailout deal with Greece worth €130 billion is based on an understanding that Greek creditors accept voluntary debt restructuring.

An Irish official said last night the Government was not going to speculate on the views of Mr Rehn.

Mr Rehn said he was hopeful EU leaders would agree to expand the EU rescue funds’ capacity, hours after Dr Merkel ruled out such a move.

Amid this dissent, concerns over the euro zone’s future spilled out into the open in Davos.

Mexican president Felipe Calderon said a larger bailout fund was required urgently, warning that the world has a “time bomb and the bomb is in Europe”.

British leader David Cameron agreed, calling for “bold” reforms and an end to “tinkering” with a euro zone still bereft of “deepest possible” economic integration, fiscal transfers and collective debt measures and a strong central bank.

“Currently, it’s not that the euro zone doesn’t have all of these, it’s that it doesn’t really have any of these,” he said, to laughter from delegates.

In an energetic reply to Dr Merkel’s WEF opening address, Mr Cameron called competitiveness Europe’s “Achilles’ heel” and rejected as “madness” proposals for a financial transaction tax in the EU.

Mr Rehn and Mr Cameron both made barely disguised rebukes of Germany’s economic strength in the EU, calling for greater efforts by trade surplus countries to reduce internal EU imbalances.

The Davos wrangling over euro zone reform and rescue is likely to reach its crescendo today, when Mr Rehn faces French and German finance ministers in a public debate.

There was some room for agreement: Mr Cameron followed Dr Merkel’s lead by calling for EU bilateral trade agreements with Canada, India, the US and Africa to boost growth and break the deadlock on world trade talks.

A bright spot in the day came when Microsoft founder Bill Gates made a $750 million donation to fight Aids, TB and malaria.

Mr Gates said the donation to the Global Fund, on top of $650 million to date, would “help to change the fortunes of the poorest countries in the world”.

“These are tough economic times, but that is no excuse for cutting aid to the world’s poorest,” he said.