Greek crisis drives wedge in EU ranks

26th April 2010, Comments 0 comments

A Greek debt rescue engaging the IMF split the European Union on Monday, with Italy attacking German "intransigence" in handing over urgently needed funds as Greece's borrowing costs shot through the roof again.

As the Greeks struggled to get a crucial EU-IMF debt rescue agreed before a looming mid-May debt deadline, Germany broke ranks to demand tight spending curbs from Athens but drew a rebuke from the Italian foreign minister.

"I am concerned by the intransigence Germany is showing," Franco Frattini said as he arrived for talks in Luxembourg with his EU counterparts.

"This is not a rescue operation (of Greece), this is a consolidation of Europe's walls, the walls of the euro, it's a rescue for all of us," he said.

His German counterpart Guido Westerwelle had earlier said Berlin opposed financial aid to Greece unless Athens first presented a credible debt reduction program.

"Making promises of concrete aid too soon will only have the effect of taking the pressure off Greece," Westerwelle said as he arrived for the talks.

"Above all, we need to see budget consolidation taking place in Greece," said Westerwelle, whose governing coalition is facing a tricky regional election on May 9.

In Greece, analysts are noting that the government caught Brussels napping as it sought to activate the fall-back loan currently worth 45 billion euros (60 billion dollars) before European money could be put in place.

"(Greek PM) George Papandreou pushed the button of a mechanism that is not operational," wrote Dimitris Mitropoulos, a columnist in top-selling Ta Nea daily which nominally supports the government.

"The wiring has not been connected and most importantly, the voltage needed has not been set," he added, noting that Greece's actual loan needs could run to 150 billion euros over three years according to certain estimates.

Greece is scrambling to get the financial package in place ahead of a May 19 deadline to pay bondholders about 8.5 billion euros, leaving only a small window to act or face a crippling default.

Athens has a total public debt approaching 300 billion euros.

On Monday, the interest rate on Greek 10-year debt reached 9.116 percent, the highest for Greece since the country joined the eurozone in 2001. The previous record was 8.950 percent early on Friday, shortly before Greece abandoned efforts to stand alone and asked for help.

And the euro sank to 1.3320 dollars from 1.3384 dollars in New York late on Friday, when it had hit a one-year low at 1.3202 dollars.

The potential involvement of the International Monetary Fund has met a poor response in Greece amid fears that it could prescribe austerity cuts that will further undermine the country's recession-hit economy.

Conservative opposition leader Antonis Samaras accused the government of placing the country under "suffocating" IMF control while the leading union spoke of a "particularly painful" development which called for mobilisation.

"The IMF will impose new measures that neither our economy nor our society can take," said Samaras, whose party was ousted from power in October as the global financial crisis began to take root in Greece.

The conservative leader will later today meet with an IMF mission sent to Athens last week to discuss the terms of the loan.

Greek unions have already staged a series of general strikes, work stoppages and street protests against the government's crisis cutbacks.

Greek-flagged ships were blocked at the main port of Piraeus on Monday under a sailors' strike against government efforts to open the sector to foreign competition. The capital will be left without public transport on Tuesday during a six-hour work stoppage against state spending cuts.

Greece has ruled out the prospect of restructuring its debt or leaving the eurozone.

"It is a scenario that has no basis," the Greek finance minister said on Sunday during an IMF meeting in Washington when asked about a debt restructuring.

"Greece is a member of the eurozone, will always remain a member of the eurozone, will always remain within the European Union, full stop."

The Greek debt crisis has hit the euro hard, plunging the eurozone into the most serious crisis of its 11-year history and placing other eurozone nations, most notably Portugal, Italy, Spain and Ireland in the firing line.

"Greece will remain under the spotlight with speculation about debt rescheduling/restructuring and concerns over the contagion effects to persist for a while," BNP Paribas said in a note on Monday.


© 2010 AFP

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