Merkel, Papandreou buying time for debt-stricken Greece
The German chancellor and Greek prime minister today gave speeches pushing their plan to solve Greece's economic crisis, just days before the German parliament votes on more bailout money.
Only two days before a crucial vote in the German parliament on the expansion of the euro rescue fund on Thursday, Greek Prime Minister George Papandreou and Chancellor Angela Merkel gave fighting speeches in Berlin to present a unified front.Skip to next paragraph
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“Yes, we can,” Mr. Papandreou shouted, calling the crisis engulfing his country a “unique chance for Greece to gain new power.” He insisted the efforts of his fellow countrymen to improve the situation deserved respect. “I can guarantee that Greece will fulfill all its international obligations.”
Chancellor Merkel was more than happy to pay respect to her Greek guest. The reforms under way in Greece were impressive, she said. “The most important thing now is for Greece to regain the confidence of the international community. The eurozone as a whole needs to stop being a union of debt, and turn into a union of stability.”
While many guests at the BDI meeting seemed impressed, economists reacted soberly.
“What we are doing right now, is buying time,” says Ferdinand Fichtner of the German Institute for Economic Research in Berlin. “Expanding the euro rescue fund (EFSF), releasing more bailout money to Greece – all that buys time. But in the end there will have to be a haircut," says Mr. Fichtner, referring to a write-off of a portion of debt. "It’s the only solution for Greece.”
Writing off a large part of Greek debt – 50 percent seems to be the number agreed on by experts – is risky for Europe’s leaders, as it could threaten financial stability at home. “A haircut will mean that a number of banks holding Greek debt will waver,” says Fichtner. “They will need capital – and recapitalizing banks is not very popular after the 2008 banking crisis.”