Athens Under Pressure Berlin Considers Greek Bailout as Unions Strike
The German government is considering bilateral action to help Athens out of its current financial woes, according to media reports. Meanwhile public sector workers in Greece are striking in protest against new austerity measures.
Europe's common currency, the euro, has been under intense pressure recently over fears that Greece could go bankrupt. Now a ray of hope has appeared on the horizon: A bailout for the cash-strapped country is looking more likely with Germany seriously looking into the possibility of bilateral aid.
The Financial Times Deutschland reported in its Wednesday edition that Germany is considering direct bilateral aid for the heavily indebted Athens government, quoting sources close to the German government. However Berlin would prefer a European solution, the newspaper reported. One option apparently under discussion is Germany and other European countries lending Greece money under favorable conditions via capital markets.
The Wall Street Journal Europe reported Wednesday that Germany is looking to lead an EU "firewall" to contain the debt crisis, possibly by guaranteeing loans in a bid to calm fears of a Greek default. "The plan would be undertaken within the EU framework but led by Germany," the newspaper quoted a source close to the discussions as saying.
No Concrete Plans Yet
The English edition of the Financial Times also cited a German official as saying that Berlin has decided to "take a significant step." "It's more about finding firewalls, containing the problem, than principally about helping the Greeks," the unnamed official said, adding that there were no concrete plans yet.
It is unclear whether other plans exist and if a German bailout would only be used as a last resort if all other rescue attempts fail. The deputy leader of Germany's conservative Christian Democrats' parliamentary group, Michael Meister, told the Financial Times Deutschland that the German government was working on a rescue package but did not reveal any details.
According to the news agency Reuters, European governments and the European Central Bank have already run various scenarios to see how Greece can best be saved from bankruptcy. The EU member states will discuss the issue at a summit on Thursday in a bid to come up with a coordinated approach to the crisis. There are concerns that the budgetary problems in Greece could threaten the credibility of the entire euro zone.
EU members appear to be united that any aid to Greece would come with tough conditions attached. "The first priority for the EU is a stable euro," Meister said. "If Greece receives aid, then it will only be under strict conditions and (will be dependent) on the Greek government radically reforming the state." Speaking Tuesday, the EU's monetary affairs commissioner, Joaquin Almunia, said Thursday's summit should make it clear to Greece that any help would be in return for clear commitments. "You can't get support for free," he said.
Taking the Risk Seriously
Germany's role in a possible bailout may become clearer on Wednesday. According to the Financial Times Deutschland, Finance Minister Wolfgang Schäuble will provide senior members of his party, the Christian Democrats, with more details about a possible rescue plan on Wednesday.
Both the EU and the European Central Bank have so far rejected direct aid to Greece. The markets, however, appear to consider it likely that the EU will provide assistance, given concerns that a possible Greek bankruptcy could have a contagious effect on other euro zone members. Ewald Nowotny, a member of the ECB's governing council, said Tuesday that the bank was taking that risk seriously.
European share prices rose slightly on Wednesday in reaction to indications that the EU may bail out Greece. London's benchmark FTSE 100 index gained 0.78 percent while Frankfurt's DAX 30 increased 0.99 percent.
Markets will be watching developments Wednesday closely as Greek public sector workers belonging to the civil servants' union ADEDY begin two days of strikes in protest against the government's newly announced austerity measures. Flights were grounded Wednesday with train and ferry services also affected. Many schools and state offices were closed, and hospitals were operating on an emergency-only basis. Protestors gathered outside the parliament building in Athens Wednesday and there were reports of riot police firing teargas at demonstrators in the center of the capital.
'The Workers Are Paying for the Crisis'
Public sector workers are complaining that low-paid employees will suffer most under the austerity measures while rich Greeks continue to successfully evade taxes. "The government is taking the side of the wealthy while insisting that the workers pay for the crisis, and not those who created the crisis: the capitalists," one of the Athens protesters told Reuters.
However the government is believed to have enough public support to be able to weather the current strike. Around 64 percent of Greeks believe the austerity measures are necessary, according to recent polls.
On Tuesday, the Socialist government in Athens announced details of their austerity program, which includes several measures affecting public sector workers, such as wage cuts, a hiring freeze and the cutting of supplemental wage allowances. The government also intends to raise the retirement age. Greek Finance Minister Giorgos Papakonstantinou announced tighter controls on tax evasion and called on Greeks to help combat tax fraud. The government also announced a "capital amnesty" which will enable Greeks to repatriate investments held abroad without having to fear being prosecuted for tax evasion.
The program is in response to the country's abysmal financial situation. The government in Athens wants to bring its current deficit of almost 13 percent of GDP back down under the limit of 3 percent permitted under euro-zone rules by 2012. The European Commission last week placed the Greek government finances under its supervision. Greece must now send regular reports to Brussels, with the first due on March 16.
Risk premiums for Greek government bonds have risen drastically as a result of the crisis, and the country has had to pay higher and higher charges on its borrowing. Accruing debt is becoming increasingly expensive for other countries in the euro zone as well, among them Portugal and Spain. There is speculation that Greece and other southern euro zone countries could default on their sovereign debt and observers are not ruling out the possibility of national bankruptcies.
dgs -- with wire reports