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03/04/2010

It is one of the most sensitive subjects in Berlin: aid for Greece. One wrong word by a top German politician and the already nervous markets could become even more jittery. Instead, politicians are keeping their mouths shut and holding their breaths.

Greek Prime Minister George Papandreou will meet with Chancellor Angela Merkel on Friday in Berlin. Given the tense situation, the meeting promises to be explosive. As a precautionary measure, Merkel has already said that financial support will not be on the agenda.

Instead, the meeting is an attempt to make sure the Greek government stands by its obligation to gain control over its budget deficit through spending cuts. On Wednesday, Papandreou announced new austerity measures in Athens. The mood in Greece is tense. Under the proposals, wages will be reduced, taxes will be raised and gasoline prices will go up -- measures that are guaranteed to drive the unions into the streets to protest against the recently elected Socialist government.

The administration in Berlin is conscious of the Greek government's difficult situation and is praising its efforts, which Merkel has called "the right step," saying that it will help strengthen the markets' confidence in Greece and the euro. She also points out that the austerity measures are unavoidable.

Merkel and the members of her coalition government know that it is not just Greece but the stability of the euro that is at stake. For weeks, the common currency has been burdened by fears of a national bankruptcy in Greece, whose total debt is likely to reach about 120 percent of its gross domestic product in 2010.

Closed-Door Meeting

Merkel, Foreign Minister Guido Westerwelle, Economics Minister Rainer Brüderle and a representative of Finance Minister Wolfgang Schäuble, who is currently in hospital, met on Tuesday evening for a strictly confidential discussion. The tenor of the meeting was to avoid adding fuel to the fire at all costs. The coalition's parliamentary groups are also not saying much on the subject.

"We expect that Greece will undertake efforts on its own, and we owe this to the people in Germany," Birgit Homburger, the parliamentary floor leader of the liberal Free Democratic Party (FDP), said Wednesday. She was unwilling to even address speculations over whether Germany will eventually be asked to come up with billions in aid. "We expect the Greeks to make great efforts; all other questions are currently irrelevant," she said.

"At the moment," "currently," "shortly" -- these are the kinds of filler expressions with which politicians in Berlin are trying to buy time. The government in Athens will soon issue new government bonds. German politicians are apparently waiting to see how the market reacts. The European Union also has to agree on what it intends to do. The EU will soon announce concrete instruments to support euro countries in crisis. "We have to have solidarity in the European Union," European Commission President José Manuel Barroso said on Wednesday in Brussels. "The concrete instruments, we will present them in due time."

Besides, some in Berlin suspect that before Germany and the EU can act, Athens will have to show the German people that it has taken decisive action. This would be the only way to justify any aid efforts. Polls have shown that a majority of Germans currently oppose German taxpayers' money going to help Greece.

Alternative Scenarios

There has been no lack of speculation over such aid. Only last weekend, a spokesman for Schäuble denied reports that support funds for EU partner Greece were to be removed from the federal budget this week. The problem is also of a legal nature. Aid is strictly forbidden under the Maastricht Treaty, which creates a challenge for legal experts. Staff members at the German Finance Ministry have already looked into ways to get around the problem. The possible approaches include the following:

• Some time ago, there was talk of a bailout fund to which all countries in the euro group would contribute. Germany would chip in €5 billion, corresponding to its capital contribution to the European Central Bank. Depending on the situation, the funds would be provided as either a loan or a loan guarantee, in return for Greek cost-cutting measures.
• According to another idea being discussed in the EU, state-owned banks would step up to the plate if Greece could no longer find buyers at acceptable conditions for its government bonds among private institutions. This is because the crisis has prompted investors to demand consistently high returns for the securities. In Germany, the government-owned bank KfW could buy the Greek bonds, if necessary.
• Deutsche Bank CEO Josef Ackermann was in Athens late last week. Since then, there has been speculation in Berlin over whether he was there to discuss the establishment of a protective shield if the market failed to react as hoped to the bond issue.
• There have also been recurring reports on intervention by the International Monetary Fund (IMF). This option is considered unlikely, because the EU would be admitting that it is incapable of tackling the problem by itself.
• Finally, there is talk of an EU special envoy being sent to Greece to monitor the country's austerity measures.

Public speculation over aid may be unavoidable, but it is viewed with concern among coalition politicians in Berlin. "If we discuss a wide range of models hypothetically, it doesn't help anyone and, most of all, it doesn't reassure the markets," said Volker Wissing, chairman of the finance committee in the German parliament, the Bundestag, in remarks to SPIEGEL ONLINE. Wissing, a member of the FDP, is opposed to "premature outside help" for Athens, which he says would be an "absolute disincentive."

Anything Except Money

Germany's conservative Christian Social Union (CSU), the Bavarian sister party to Merkel's Christian Democratic Union and a member of the coalition government, takes a much tougher position in Brussels, however. Markus Ferber, a member of the European Parliament who is head of the CSU European Affairs Group, rejects all forms of German financial assistance for Greece. "We'll be happy to give the Greeks anything, just not money," Ferber told SPIEGEL ONLINE. "Good advice, administrative assistance, clear guidelines from Europe."

Jorgo Chatzimarkakis, a German of Greek descent who is a member of the European Parliament for the FDP, takes a slightly different approach. He wants to see the EU start by helping Greece help itself. The EU special enjoy would play a role in this scenario. Former ECB Vice President Lucas Papademos is under consideration for the post. "On the one hand, he could monitor the economic and financial situation, as well as create confidence in the euro zone," Chatzimarkakis told SPIEGEL ONLINE. "On the other hand, he could serve as a lightning rod for Papandreou within Greece."

If all of this doesn't put a stop to speculation against Greece and the euro, says the FDP politician, the EU countries could provide financial assistance in the form of loan guarantees or by buying up Greek government bonds.