CHANCELLOR ANGELA Merkel has called on her party to back further aid for Greece or risk spreading financial market contagion to Spain and other euro zone countries.
German finance minister Wolfgang Schäuble made the case for a “soft” restructuring of Greek debt, extending bond maturity by seven years.
In talks last night, Dr Merkel insisted that any second rescue package for Greece would have “considerable conditionality” and significant involvement of private-sector creditors.
Concerns are growing in Germany’s ruling Christian Democrats (CDU) and Free Democrats (FDP) over further assistance to Greece, a situation not helped by the troika report conceding a reform standstill.
For Dr Merkel, yesterday’s meetings were about winning Bundestag backing for a bailout vote tomorrow. Despite their reservations, government MPs have been asked to send the German leader to the upcoming EU summit with strong parliamentary backing.
In separate meetings, she warned the parliamentary party of the CDU and the FDP that withholding further help from Greece risked an disorderly insolvency in Athens, with uncertain risks for other euro zone members facing financing concerns, in particular Spain.
“We need to let these countries get back on their feet, otherwise we’ll only create additional problems for ourselves,” Dr Merkel told the CDU meeting, according to one person who attended.
Michael Meister, CDU finance spokesman in parliament, urged continued support for Greece to “keep the situation under control”.
“We have a difficult situation as it is,” he said, according to participants in the meeting. “Now is not the time for experiments.”
The meeting followed the leaking of a letter from Mr Schäuble to ECB president Jean-Claude Trichet and euro zone finance ministers, calling for a new aid package for Greece to include a so-called “soft” restructuring to extend the life of outstanding sovereign bonds.
France reacted within hours of the letter leaking, warning against any calls for Greek restructuring.
“The French line has always been to refuse the restructuring of Greece’s debt and we are not deviating from that line, regardless of what terms are proposed,” said government spokesman François Baroin.
Berlin did not favour private-sector involvement in assistance to Athens initially, but has slowly shifted its position as it became clear that further assistance is needed. “The Greek situation has evolved. They’re only off-track for the last three months, it’s a recent problem,” said one Berlin government source yesterday. “You start from an optimistic point of view and, if the Greeks go off track, we think it’s fair and helpful for Greece to have the burden of assistance spread over more shoulders than just the taxpayers in triple-A [rated] countries.”
The German finance minister warned in the letter that “the situation is difficult” and described hopes of Greece returning to capital markets next year as “more than unrealistic”.
German officials insist they want “completely voluntary” private-sector involvement, but are confident they can help creditors agree to come on board.
