FRANCE AND Germany made a show of unity in Berlin yesterday, calling for a second Greek aid package involving voluntary private-sector participation by next month.
Ahead of next week’s EU summit, German chancellor Angela Merkel officially ditched Berlin’s earlier demand for more extensive private-sector involvement, a tacit acknowledgement of warnings from the European Central Bank that this approach could trigger adverse market reaction.
The German proposal had caused alarm in Paris too, given French banks’ considerable exposure in Greece.
News of a Franco-German reconciliation after bilateral talks in Berlin calmed markets, pushed up the euro and triggered a Greek bond rally.
“We want involvement of the private sector on a voluntary basis – and I want to stress this – because there is no legal basis so far for obligatory involvement,” said Dr Merkel after meeting French president Nicolas Sarkozy. “We have to move forward on this and I think it makes sense to involve the private sector, that is important for us.”
The technical details of a further aid package would be worked out with the ECB, she said, adding that “there shouldn’t be any dispute over this” with the Frankfurt bank.
For six weeks, Berlin has been at odds with the central bank over Greek creditors: Frankfurt had warned that Berlin’s proposal to extend the maturity on Greek bonds could be interpreted by markets as a partial default and trigger a “credit event”. Earlier this week, Berlin officials had begun to soften their position and yesterday said a deal will need to be on the table next month and no later.
“The quicker we get a solution on this the better,” said the German leader.
President Sarkozy agreed, saying: “We want to go as quickly as possible without fixing a date.”
He described the agreement in Berlin as a “breakthrough” and said a future Greek deal would be modelled on the so-called “Vienna Plan” developed in 2009 during the financial crisis.
“What we decided just now is precisely in the spirit of what was decided in Vienna,” he said.
The Vienna strategy would see creditors encouraged, but not coerced, into rolling over soon-to-expire bonds. That would give Greece some breathing space for further austerity measures, as demanded by the EU-IMF troika and until the permanent rescue fund is activated in 2013.
Earlier this month, German finance minister Wolfgang Schäuble told the ECB president and euro zone colleagues that the terms of a second Greek financial aid package would have to go “beyond a pure Vienna initiative approach”.
Berlin’s hard line on private creditors, and yesterday’s shift, reflect Dr Merkel’s difficult position between bailout-fatigued German voters and an increasingly alarmed ECB.
In a sign that it will take some convincing to gather German support for this compromise, her officials went into spin mode. They insisted Berlin will only back a deal if the private sector contribution is “substantial, quantifiable and verifiable”.
Economists in Germany have expressed uncertainty as to how this can be achieved.
Mr Sarkozy made no mention of “substantial” in his four principles by which the second Greek package should be measured: its voluntary nature; the speed with which it is to be agreed; no defaults; and ECB support.
In a rallying call to flagging domestic support, Dr Merkel insisted Germany “will do everything to support the euro”.
She went to some lengths to insist there was no tension with Paris, neither over Berlin’s abstention on the recent United Nations vote on Libya nor on its recent decision to abandon nuclear energy by 2022.