The World from Berlin 'Greece Can Only Be Saved with an Excellent Show'

Nobody really believes that Greece can pay down its debt any time soon. Which is why, say German commentators, it is time for Chancellor Angela Merkel to stop weighing her options and take action. The markets, they argue, need a signal of European solidarity.
French President Nicolas Sarkozy and German Chancellor Angela Merkel met on Wednesday evening in Berlin.

French President Nicolas Sarkozy and German Chancellor Angela Merkel met on Wednesday evening in Berlin.


The talks lasted for more than six hours. German Chancellor Angela Merkel and French President Nicolas Sarkozy holed up in the Chancellery in Berlin until shortly after midnight on Wednesday night, in an attempt to find a common position on the euro ahead of Thursday's special summit aimed at assembling a second bailout package for heavily indebted Greece. At 10 p.m., the two were joined by European Central Bank head Jean-Claude Trichet. European Council President Herman Van Rompuy participated by telephone.

Finally, shortly after midnight, Merkel's spokesman Steffen Seibert was able to announce that the two leaders had reached an agreement. Though details have still not been announced, the euro immediately began rising against the dollar in Asian markets.

Wednesday's meeting had become necessary after weeks of head-butting between Paris and Berlin over the correct strategy to pursue in renewed efforts to prevent a Greek insolvency. Merkel had long been insisting on significant private involvement in the second Greek bailout package, which is likely to be similar in size to the €110 billion fund passed just over a year ago. France, however, had been skeptical, in part because French banks are heavily exposed to Greek debt.

Ratings agencies, too, had not taken kindly to Merkel's plan and had indicated that they might view such involvement as a partial default. The ECB had likewise voiced its strict rejection of the plan. In a meeting several weeks ago, Sarkozy got Merkel to back away from her original position of making private involvement mandatory, going for an optional plan instead. That, though, has likewise proven to be unworkable.

Social Unrest Could Result

"Debt restructuring would be a disaster -- no matter whether hard or soft," Lorenzo Bini Smaghi, an ECB board member, reiterated in a Wednesday conversation with Die Welt. He said that the Greek banking system would collapse and that social unrest could result.

France, for its part, has been pressuring Germany heavily to support the creation and issuing of euro-bonds to finance Greece and other indebted countries. Germany has been hesitant to sign on as it would likely make borrowing more expensive for Berlin.

Several times in recent days, Merkel has sought to lower expectations for Thursday's summit in Brussels. "Further steps will be necessary and not just one spectacular event which solves everything," Merkel said earlier this week. "Whoever takes political responsibility seriously knows that such a spectacular step won't happen."

Still, the apparent agreement with Paris have many anticipating that the second Greek bailout package could very well be announced this week. And with indications that the debt crisis in Greece, Portugal and Ireland could be spreading to Italy and Spain, many have been calling for a rapid agreement and demonstrative euro-zone solidarity. German commentators join in the discussion on Thursday.

Conservative daily Die Welt writes:

"European federalism, as France understands the term, means the introduction of euro-bonds -- which in turn means profiting from the lower interest rates while Germany takes on the risk. That is the kind of leadership that France would like to see from Germany. Nicolas Sarkozy almost certainly used all of his charm on Wednesday evening in Berlin in the effort to get Merkel to agree."

"The chancellor, however, would rather avoid expensive grandiosity in favor of substantive measures to save Greece. But she seems not to recognize that Greece and Europe can, if at all, only be saved by way of an excellent show. It must be so perfectly planned that all observers and market participants come away with the illusion that the show is full of substance -- and that Greece isn't broke after all."

"The markets aren't interested in the current situation; they are only interested in what the situation might be like in the future. For that reason, they need a spectacle. Hence the desire for a gesture, a performance. More important than the actual results of the negotiations -- which no market participant will understand anyway -- is that one demonstrates decisiveness. The market needs a 'signal.' The speculators need a signal. It would be best to give it to them."

Center-left daily Süddeutsche Zeitung writes:

"Yes, Angela Merkel is taking her time. No, that isn't necessarily wrong, as the political opposition here in Germany insists and as other European Union members, whose national interests are different from those in Germany, have also said. One example: If the EU were to issue euro bonds in order to support Greece, that might be good for Greece. But for Germany and Austria it could mean higher interest rates and an increased need to devote part of their national budgets to other countries' debts. Pathos -- such as the pathos involved in calling for quick, far-reaching decisions -- is not enough to solve the deep structural problems revealed by the euro crisis. In contrast to earlier times in the European Union, symbolic gestures ... would merely be absurd."

The Financial Times Deutschland argues on Thursday that it is time for the International Monetary Fund (IMF) to withdraw from efforts to assist Greece.

"The IMF no longer tries to hide its disgust with the bickering and the hesitancy of the Europeans. In Washington, the possibility of the IMF withdrawing from Greece is being increasingly discussed. When the IMF last week authorized the most recent payment tranche to Greece, it made it clear that the institution would only allow further credit to flow in such an uncertain situation because of the possible consequences for Europe and the world of a disorderly bankruptcy."

"It would be a catastrophe to stop payments from the bailout fund that has already been agreed to. But when it comes to the second such package, the IMF would do well to decline participation. The IMF should strictly refuse to join a second package if it includes voluntary defaults, as recently discussed.... If such a refusal were to create instability on the markets, then so be it. The IMF is there to help countries with liquidity problems. It is not there to throw money away by loaning it to insolvent governments. If the euro zone wants to follow a stupid bailout strategy, then the IMF shouldn't have to pay for it."

-- Charles Hawley
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