Euro zone closer to Greek rescue deal

 

A DEAL on how the European authorities would provide emergency bilateral loans to Greece drew closer last night as officials made preparations for an extraordinary meeting of euro-zone leaders before an EU summit tomorrow.

As German chancellor Angela Merkel eased her opposition to a rescue pact but sought tough conditions for any support, French president Nicolas Sarkozy called for an ad-hoc meeting of the heads of state and government in the single currency group.

Although the meeting had not yet been formally scheduled late last night, sources close to the talks on Greece’s debt crisis said the intention would be to reach formal agreement on a rescue mechanism that would be deployed if required.

The meeting, if it goes ahead, would represent the culmination of fraught political talks on the parameters of a plan to help Athens overcome its financing crux.

Greece faces a €20 billion funding requirement in the next two months. European Commission president José Manuel Barroso has pressed for a deal this week to end uncertainty over the existence of a safety net as Athens prepares to go to the markets.

Luxembourg’s prime minister, Jean-Claude Juncker, head of the euro-group finance ministers, has suggested that all members of the single currency would participate in a rescue. While that implied that Ireland would be obliged to take part in loan financing, officials briefed on the latest drafts of the plan said participation would be voluntary.

Greek prime minister George Papandreou has argued for weeks that agreement on a rescue plan – even if it is not deployed – would ease the interest burden on his country’s rising national debt.

But Greece has faced German resistance to its pleas. Opposition within Dr Merkel’s administration to a rescue presents a major challenge to the chancellor, given the likelihood that Germany would be biggest provider of any loans. The prospect of a legal challenge to a “bailout” in the German constitutional court is a further concern in Berlin.

But in a change of stance yesterday, German officials briefed reporters on Berlin’s bottom line for an intervention. They said aid would be triggered only if Greece was unable to access credit markets, adding that the International Monetary Fund (IMF) would also have to be involved.

In addition, they said EU governments would have to agree to adopt new “instruments” beyond the provisions of the current euro rulebook as set out in the Stability and Growth Pact.

Dr Merkel is reported to have set out similar conditions in meetings yesterday with her political allies. Even though well-placed diplomats said there was no change in Berlin’s position, the setting out of Germany’s conditions was read in Brussels as a crucial step in the direction of a deal.

“Germany has moved,” said an informed source, adding that a deal now appeared more likely than at the beginning of the week.

Although IMF involvement in a rescue is anathema to many top officials in the EU institutions, Mr Barroso has moved to distance himself from “theological debates” about the merits of proceeding without the Washington-based fund.

Minister for Finance Brian Lenihan has ranked among those arguing against IMF involvement.

However, Mr Sarkozy was said in some quarters last night to be on the point of setting aside his own reservations.

“We agree to request a meeting of the heads of state and of the euro group just before the European Council to talk about economic governance in Europe and in the euro zone,” Mr Sarkozy said in Paris yesterday.

Standing beside him was Spanish prime minister José Luis Zapatero, whose country holds the EU’s six-month rotating presidency. “Europe and the euro group must help Greece make progress,” Mr Zapatero said.