Buying Time: Greece to Request Extension on Austerity Measures
Greek Prime Minister Antonis Samaras is expected to have a difficult mission next week. He wants to persuade German Chancellor Angela Merkel to ease strict austerity conditions on his country, and he may also need to ask for billions in additional aid. Speculation is also growing about a possible bond-buying program for Spain.
Antonis Samaras is showing a bit of courage at the moment. Next week the Greek prime minister plans to travel to Berlin, where he wants to personally persuade Chancellor Angela Merkel to loosen tough conditions for aid despite growing criticism of Athens in Germany. Samaras plans to seek a two-year extension, to 2016, of an austerity plan that was previously agreed with the so-called troika of the European Commission, the International Monetary Fund and the European Central Bank, the Financial Times is reporting, citing a document it has obtained.
The British newspaper is reporting that Samaras wants to first present the plan next week to French President François Hollande and then travel to Berlin one day later for a meeting with Merkel. Iannis Mourmouras, Samaras' chief economic adviser, told the newspaper the extension was justified because of the country's deep recession, with the economy set to shrink this year by 7 percent.
Under current agreements with its international donors, the Greek government must cut its budget by 11.5 billion ($14.2 billion) by 2014. The new plan would see Greece reducing its government budget by 1.5 percent of annual GDP instead of the previously foreseen 2.5 percent. This would spread the implementation of all the cuts over a four-year period.
According to the document cited by the Financial Times, Greece will also need additional funding of 20 billion to support its running budgets. However, Athens' proposal does not foresee it requesting that money from its European partners. Instead, it would be raised from an existing IMF loan or issues of treasury bills. According to the document, the country is hoping for a postponement of the start of repayments of its first EU-IMF loan from 2016 until 2020.
In Germany, Foreign Minister Guido Westerwelle of the business-friendly Free Democratic Party told SPIEGEL ONLINE he would be open to considerations to give the Greek government more time to pursue reforms. "The time that was lost in the Greek election campaigns must be dealt with," he said. At the same time, the politician, whose party is the junior partner in Merkel's coalition government, emphasized: "It is clear that no substantial changes can be made to the reform agreements."
Successful Bond Float
On Tuesday, Greece succeeded in auctioning off bonds worth 4 billion, although they come due in just three months. The last-minute auction had been conducted to cover a bond redemption due on Aug. 20 and also happened with indirect aid from the ECB, which allowed the Greek central bank to issue additional emergency loans to the country's banks, which in turn bought up the Greek bonds with short maturities. The money had been needed to buy time until Greece obtains its next tranche of aid.
Samaras' plan to delay Greece's austerity plan is a daring one given a recent sharpening of criticism against Greece. In Germany, politicians within Merkel's conservative government coalition are already talking openly about the possibility of a Greek exit from the euro zone. They also categorically reject any loosening of austerity agreements with the country.
Meanwhile, the situation in Greece is deteriorating rapidly and Athens is once again at risk of an uncontrolled bankruptcy. The country had been scheduled to obtain aid tranches from the previously agreed bailout, but the EU-IMF-ECB troika monitoring progress in reforms suspended disbursements in June. As long as it remains unclear what policies the new Greek government will pursue, the donors have said they will hold back the payment of 31.5 billion that is due. The troika is now expected to decide in September whether it will pay out that tranche.
EU Ready for Spain Action if Needed
The crisis in Spain also remained in the headlines on Wednesday. Amid speculation that Madrid may soon require a full-fledged bailout, the EU's economics commissioner said the bloc would be ready to provide aid to the country if needed.
"The European Commission and the Euro Group stand ready to take action if needed," Olli Rehn told broadcaster CNBC. "Concerning Spain, we have already started the implementation of the banking sector program," he said, a reference to the 100 billion bank bailout currently being provided to the country. "We will in parallel be prepared for any further action if it is needed."
Responding to calls for the ECB to resume purchases of Spanish government bonds, Rehn answered: "To my mind, it is clear that both the EU -- and I dare say the ECB -- are ready to take action once certain conditions are met and if there is a request by some member state to go into a primary-market purchase program."
The ECB recently said it is considering relaunching a bond-buying program, but only if countries first request aid from the euro bailout fund, which would require them to submit to strict supervision. Currently, the ECB can only purchase bonds on the secondary market, but the euro bailout fund is technically allowed to buy bonds directly on the primary market.
dsl -- with wires
Stay informed with our free news services:
© SPIEGEL ONLINE 2012
All Rights Reserved
Reproduction only allowed with the permission of SPIEGELnet GmbH
Corriere della Sera
MORE FROM SPIEGEL INTERNATIONAL
German PoliticsMerkel's Moves: Power Struggles in Berlin
World War IITruth and Reconciliation: Why the War Still Haunts Europe
EnergyGreen Power: The Future of Energy
European UnionUnited Europe: A Continental Project
Climate ChangeGlobal Warming: Curbing Carbon Before It's Too Late