Sarkozy, Merkel reach deal on Greece bailout cash
Germany and France reached an agreement that should see a desperately needed Greece bailout move forward.
Germany backed off of its demand that a Greek bailout involve tougher terms for private investors, an outcome that French president Nicolas Sarkozy today called a “breakthrough” and that cheered European markets.Skip to next paragraph
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A crucial meeting in Berlin today between German Chancellor Angela Merkel and Mr. Sarkozy smoothed over a dispute that has been holding up a bailout for Greece. Germany was insisting that private creditors of Greece exchange some of their short term Greek debt for longer, and therefore riskier, maturities. With Germany backing off that demand, the last obstacle to a desperately needed July payment from the European Central Bank to Greece has been removed.
"There is no time to lose," Sarkozy said after the meeting.
Greece is reeling from riots against austerity measures implemented as a price of the European Union bailout Greece needs to pay its debts. Without the July payment, a government default was likely – an event that would spike borrowing costs across Europe and potentially push other tottering economies like Portugal, Spain, and Belgium over the edge.
European markets responded positively to the news, although this is only a temporary reprieve, not a longterm solution to Greece's debt problems.
For the second time in a year, Greece is on the precipice of bankruptcy. European leaders are worried about how to deal with a eurozone charter member whose default would have severe repercussions for the euro, for European unity, and even for some US banks.
Greece owes some $400 billion in bond debt. Over $120 billion must be fully paid by 2014, and $17 billion is needed to pay debts by July 15, 2011. There is no money left in the Greek hopper, hence the desperate need for the bailout.
Making Greece wake up
For most of the past month European finance ministers listlessly debated about how to help as Greece sank further. Then a June 9 decision by the government of Prime Minister George Papandreou to make a further $40 billion of budget cuts – a condition for receiving a slice of last year's bailout money – proved too much for Greeks already angry about previous austerity measures.
The result: tear gas in Athens, sharper frustration among unemployed youths, and a cabinet reshuffle to avoid a government collapse. Today, Mr. Papandreou replaced his finance minister.