German Chancellor Angela Merkel dropped her government's insistence on forcing a rescheduling of Greek government bonds, ending a six-week standoff that threatened to halt any more loan payouts to Greece. Instead, she said was open to a voluntary rollover of the country's debt.
The move came as the Greek prime minister reorganized his government, naming a new finance minister to help overcome public resistance and push an austerity package into law.
The focus of the Greek discussions now shifts to Luxembourg on Sunday and Monday, where European finance ministers are due to hold talks.
A new aid package for Greece would stave off the threat of a Greek debt default in the short term. But it wouldn't address the bigger challenge facing Europe: the likelihood that Greece won't be able to repay all of its debt, and the difficulty of cutting Greece's debt burden without sparking capital flight from other struggling countries around the euro zone's fringes.
Meanwhile, the German chancellor still needs to win political support from her governing coalition. And the longer the crisis continues, the more likely Berlin is to again press for a debt restructuring as an alternative to continued bailouts, analysts say.
Ms. Merkel's concession, announced Friday at a news conference in Berlin with French President Nicolas Sarkozy, clears a major obstacle to a deal on a new international aid package for Athens.
"We have spent the whole months of May and June discussing the same questions without really advancing," Ms. Merkel said. "The faster we solve the problems, the better."
The International Monetary Fund for the first time on Friday publicly called on the private sector to help finance Greece and other European peripheral countries, warning that failure to help fund the ailing economies could force sovereign-debt defaults and risk derailing the global recovery.
"The stakes are very high," said IMF chief economist Olivier Blanchard at a news conference in São Paolo, Brazil. "Failure to commit and implement policy or failure to deliver on financing hold the risk of triggering disorderly financial and sovereign defaults."
Moody's Investors Service on Friday warned that the sovereign rating of Italy—the euro zone's third-largest economy—was in jeopardy.
European finance ministers meeting in Luxembourg are likely to sign off on a €12 billion ($17 billion) payment from last year's €110 billion bailout and start working on key points of a new rescue, needed because Greece won't be able to return to bond markets in 2012 as had been expected.
Until Friday, Germany was insisting that holders of Greek government bonds shoulder a substantial part of the burden of new aid by accepting repayment delays.
Its finance ministry had rejected the idea of merely asking bondholders to buy new Greek debt when existing bonds mature—known as a rollover—as too weak. The European Central Bank, backed by France, opposed asking bondholders for any contribution that went beyond a purely voluntary rollover.
Germany's concession to a voluntary rollover is the latest instance in which Berlin has balked at writing taxpayer checks to support struggling euro-zone members, only to soften its stance at the last minute to avert a financial-market meltdown.
The move signals that, although bailouts are increasingly politically unpopular, Germany isn't yet ready to risk an unraveling of the euro, which it still sees as the centerpiece of European unification.
Nonetheless, the shift means that new loans will have to be larger, and patience is wearing thin in Germany's parliament. Ms. Merkel hasn't yet presented her coalition with the bill for the new Greek bailout, let alone won parliamentary backing.
Athens continued to try to fill its side of the bargain on Friday: passage into law of a €28 billion austerity package.
The cabinet shuffle by Greek Premier George Papandreou came two days after mass protests in Athens against severe budget cuts, and the defections of two deputies of his Socialist party.
The developments, coupled with the stand-off between European governments on whether Greek bondholders should be coerced, led to a major fall in the euro and in European stock and bond markets. Friday's developments helped the euro recover some of its lost ground, and European stock markets rallied.
Post a Comment