GERMAN CHANCELLOR Angela Merkel has said the acute budget problems in Greece raises questions as to whether Europe should seek to exercise pressure over national parliaments in efforts to stabilise a country’s public finances.
Before a summit last night at which EU leaders were expected to discuss Athens’s mounting deficit, Ms Merkel framed the Greek problem as one with implications for Europe at large.
Ms Merkel, speaking in Bonn at a meeting of centre-right EU leaders, said “all other countries are affected” if something happens in one country. “As we have a common currency we also have a common responsibility,” she said.
“If, for example, there are problems with the Stability and Growth Pact in one country and it can only be solved by having social reforms carried out in this country, then, of course, the question arises, what influence does Europe have on national parliaments to see to it that Europe is not stopped,” she said in a speech. “This is going to be a very difficult task because, of course, national parliaments certainly don’t wish to be told what to do. We must be aware of such problems in the next few years.”
Even as she referred to a “common responsibility’’ towards the euro-zone member, Greek premier George Papandreou told reporters in Brussels that his government is ready for “important change” to create a viable economy.
Mr Papandreou, who has suggested that his country’s survival as a sovereign state is at stake in its financial crisis, said he has the “strong backing” of the EU in his efforts to overcome its financial problems.
His socialist government, in power since a snap election in October, disclosed when it came into office that the budget deficit this year will reach 12.7 per cent of gross domestic product, more than twice the previous forecast.
Pressure on Mr Papandreou to curtail the crisis has risen steadily since then, culminating in demands for a restoration of order from the European Central Bank (ECB) and the European Commission.
With Athens’s problems raising questions in international markets about the vulnerability of other debt-dependent states, Ireland among them, Mr Papandreou was expected last night to reiterate to his fellow leaders that he has a credible plan to restore order to his country’s public finances.
In spite of Ms Merkel’s concerns, Sweden’s rotating presidency of the EU sought to characterise the issue as a local one for Greece.
“What we now are seeing in Greece is, of course, problematic, but it is basically a domestic problem that has to be addressed by domestic decisions,” Swedish prime minister Fredrik Reinfeldt told reporters yesterday evening as he arrived at the summit.
With Greek bond spreads widening, market analysts are looking for tangible plans from Athens to curtail the deficit.
“The probability that Greece will default seems to be increasing,” said Simon Eckhoff, a fixed-income strategist at WestLB AG in Dusseldorf. “Uncertainty will prevail until there is a set of measures either by the EU or by the ECB that will be supporting Greece. Until then I don’t think we’ll see a recovery in Greek bonds.”
