Germany refuses to aid troubled Greece

BERLIN - Greece's pledge to deepen planned budget-deficit cuts failed to yield commitments of financial assistance from Germany, Europe's biggest economy, to help solve its financial crisis.

German Chancellor Angela Merkel said a meeting on Friday with Greek Prime Minister George Papandreou won't be "about aid commitments". German Finance Minister Wolfgang Schaeuble, said the deficit-reduction measures announced in Athens were probably enough to convince investors to buy Greek debt.

While Papandreou is risking a backlash at home to meet European Union demands for more deficit cuts before allies even consider providing aid, Merkel is facing domestic opposition to tapping taxpayers to extend a financial lifeline to Greece.

"There would be no understanding in Germany for bailing out Greece," said Henrik Enderlein, a political economist at the Hertie School of Governance in Berlin. "It's a bit of a catch-22 situation: if you give in to Greece and you put 5 billion euros or perhaps even 10 billion euros into some kind of rescue package or into some guarantees, then the German government would look irresponsible. However, if it doesn't, then European Union leaders might put a lot of pressure on Merkel and say, look, we have to bail out Greece."

As public workers demonstrated in Athens on Thursday after the Cabinet backed 4.8 billion euros ($6.6 billion) of measures in the third round of deficit cuts this year, Papandreou said Greece was prepared to turn to the International Monetary Fund as a last resort.

"We have fulfilled to the utmost all that we must from our side; now it's Europe's turn," Papandreou told his ministers, according to an e-mailed transcript. "It is a historic moment for the European Union."

Greek bonds rose to their highest in three weeks after the Cabinet endorsed a package of revenue-raising and budget-cutting steps, including higher fuel, tobacco and sales taxes and a cut of 30 percent in three bonus payments to civil servants on top of a wage and benefits freeze.

The measures are "convincing", the European Central Bank said. The ECB appreciates the Greek government's recognition of the need to "rapidly adopt and implement decisive structural reforms".

The Greek announcement "is as much about giving other EU governments more political capital in the event that they do eventually need to provide liquidity to Greece", said Gary Jenkins, from Evolution Securities Ltd in London.

"They can make the claim to their own taxpayers that Greece has taken further measures as suggested by the EU."

For now, none of the potential lenders has stepped up since a statement at a Feb 11 EU summit promised "determined and coordinated action" to support Greece.

"There's no need for such a thing at this point in time," French Finance Minister Christine Lagarde said.

"If it was required, the partners in the club would be available to restore stability."

After meeting Merkel in Berlin, the Greek leader is due in Paris two days later for talks with French President Nicolas Sarkozy.

While Greece is pressing EU leaders to help cover the bloc's largest budget deficit, Merkel's comments were the clearest signal yet that Germany isn't convinced.

"I expressly want to say that Friday isn't about aid commitments, but about good relations between Germany and Greece," Merkel said in an interview with N-TV. Greece's steps are "an important signal" toward restoring confidence in the euro.

Greece faces more than 20 billion euros in debt redemptions in April and May. The EU is devising a plan to grant Greece about 25 billion euros in emergency aid should the need arise, German lawmakers have said, enough to cover the maturing debt.

Bloomberg News

(China Daily 03/05/2010 page14)