Greece bailout not a given, says Germany
Greek Prime Minister George Papandreou called his country a "sinking ship" as he requested a $56 billion bailout today. But Germany, which is key to any aid package, still isn't convinced that a Greece bailout is absolutely necessary.
Subscribe Today to the Monitor
German Chancellor Angela Merkel, who has long resisted monetary support for the indebted Mediterranean nation, said today that the European Commission, the European Central Bank, and the International Monetary Fund still needed to determine if a bailout for Greece is necessary.
And even then, she told reporters here today, Greece would need to fulfill "very stringent conditions" and establish a “credible savings program” to be eligible for the aid.
Other German officials reiterated Merkel’s point, saying that any aid package to Greece would come with numerous conditions and as a last resort to rescue the euro. Michael Offer, spokesman for German Finance Minister Wolfgang Schaeuble, said that experts still needed to confirm whether Greece needs the aid.
Greece's request for aid was a sharp reversal of course from earlier assurances that Greece did not need a bailout. Prime Minister George Papandreou today called his country a "sinking ship" and requested $56 billion from the European Union and the International Monetary Fund. The request came one day after Greece revealed that its 2009 budget deficit is 13.6 percent of the Greek gross domestic product, higher than the 12.7 percent the country had originally claimed, and well over the EU's 3 percent ceiling.
This latest revelation further undermined investor confidence in Greece’s ability to make the difficult spending cuts necessary to reduce its deficit. After the announcement, Moody’s rating agency downgraded Greek bonds for the second time in the past five months, pushing interest rates on two-year Greek bonds to an astonishing 11.5 percent, nearly the same rate as for Pakistani bonds. Such high rates make it virtually impossible for Greece to raise the money necessary to make tens of billions in loan payments due in the coming weeks.
“The moment has come,” Papandreou said in a nationally televised speech this morning. “Today, the situation in the markets threatens to deconstruct not only the sacrifices of the Greek people, but also the smooth course of the economy.”
Now, the IMF and European Union officials are meeting in Athens to negotiate specifics of the bailout plan. It is not clear how long negotiations will take.
"We have been working closely with the Greek authorities for some weeks on technical assistance, and have had a mission on the ground in Athens for a few days working with the authorities and the European Union. We are prepared to move expeditiously on this request,” Dominique Strauss-Kahn, managing director of the IMF, said in a statement.
European contributions unclear
EU member states, which agreed in principle to the bailout package, have yet to determine exact amounts each nation will contribute. Financial expert Frank Schaeffer of Germany's Free Democratic Party estimated Berlin would need to give than $40 billion. But so far, only Spain has publicly stated their support to activation of the bailout package, pledging $4.8 billion.