Europeans to Debate Further Aid for Greece

Πηγή: New York Times
By STEVEN ERLANGER
August 23 2012

PARIS — Vacation is over early this year in the euro zone, withGreece and its shaky future back on the table and Spain waiting in the wings to ask for help from European bailout funds.

The political debate in Germany over the euro has resumed at a heated level, Italy is preparing for a spring election and the new Socialist government of France must come to grips with how it will meet its own deficit targets for next year when growth is close to zero.

“September promises to be pretty dramatic in the euro zone,” said Megan Greene, director of European research at Roubini Global Economics.

The first problem for euro zone leaders is Greece. After two rounds of legislative elections, the Greeks finally gave the center-right leader Antonis Samaras enough votes to form a coalition without the leftist party Syriza, and he has spent the summer trying to find another $14.5 billion in spending cuts and new revenue over 2013 and 2014 to qualify for the next round of bailout money it needs to stay solvent.

Mr. Samaras, citing an ever-deeper recession, is asking for two years more to get the economy growing and increase revenue before hitting deficit targets. Germany’s chancellor, Angela Merkel, seems willing to consider it because she is committed to keeping Greece in the euro zone.

But with German elections next year, there are strong voices in her coalition warning against yet another bailout — a third, for a Greece that never seems to meet its deficit targets — and who suggest that a Greek departure from the euro is no longer out of the question.

To coordinate a response to Mr. Samaras, Ms. Merkel met President François Hollande of France in Berlin on Thursday night for a private, working dinner. Mr. Hollande is a firm supporter of Greece’s remaining with the euro and a vocal opponent of a steady diet of austerity for the suffering countries of the European periphery, not to speak of his own.

In a brief news conference before the dinner, Ms. Merkel said that Greece must stick to its commitments and that she was waiting for a report from the international lenders known as the troika on how Greece was performing. “We will, and I will, encourage Greece to continue on its path to reform, which has demanded a lot of the Greek people,” she said.

Ms. Merkel said Wednesday that for the European Union, Greece is “not just about economic questions, but about deeply political questions and thus also about the future of Europe as a whole.”

She will meet with Mr. Samaras on Friday, to hear his plans, while he will come to Paris for a Saturday morning meeting with Mr. Hollande.

But Ms. Merkel and French officials caution that no decisions will be reached at these meetings, and that they will await a report on Greece by the troika — the European Union, the European Central Bank and the International Monetary Fund — which is expected by late September or early October. That will lead to a European Union summit meeting scheduled for Oct. 18-19, in which some decisions on Greece are expected.

In an interview with Le Monde published Thursday, Mr. Samaras said he “will explain” to Ms. Merkel and Mr. Hollande, “with all the necessary details, that Greece can succeed and that it is changing.”

The troika is expected to accept Mr. Samaras’s plans in good faith, authorizing the next loans to Greece, in part because the permanent European bailout fund, the European Stability Mechanism, will not yet be in place to handle whatever instabilities might develop. The $600 billion fund, scheduled for July, has been held up by a lawsuit in Germany; the nation’s Constitutional Court is expected to rule on Sept. 12.

The German debate over Greece continues to be harsh and the government appears divided, with skepticism that Mr. Samaras’s plan would not mean extra costs for Germany. The finance minister, Wolfgang Schäuble, said Thursday that the issue was to get Greece economically credible so it could go back to the market. “More time is not a solution for the problems,” he said. “More time possibly means more money, and more money would require a new program.”

Even if Mr. Samaras gets more slack, Greece may not make it, Ms. Greene, from Roubini Global Economics, said. “Two more years are not a game-changer for Greece, and even if the troika accepts Samaras’s plans, they will have to be legislated through the Greek Parliament, and the coalition could fall apart.”

Ms. Greene expects that the Samaras coalition will eventually collapse under the fierce political pressure of the effort to remake the country, and that a new government could abandon the euro.

“There’s very little chance that Greece will stay inside the euro zone,” she said. “I think Greece could leave as early as next spring.”

Others disagree, saying that the risks of contagion if Greece leaves are enormous, and that it is simply less costly in the long run to nurse it along.

Greece aside, Italy and Spain, the third- and fourth-largest economies in the euro zone, represent another major headache, with investors earlier this summer pushing the interest rates on their bonds to unsustainable levels. The European Central Bank director, Mario Draghi, made a large impact on the soft summer market in a news conference this month after the bank’s board met when he said that “the euro is irreversible” and that the bank was unanimous in agreeing “to do whatever it takes to preserve the euro as a stable currency.”

The board will meet again on Sept. 6. There are suggestions in the news media that the bank will try to intimidate speculators by setting limits to the spreads, agreeing to buy Spanish or Italian bonds in sufficient quantities for a long enough time to beat back speculation.

But there is no confirmation of this plan from the bank, and there are problems with the idea, especially, as some suggest, if the bank decides to set a limit but not make it public, to try to keep flexibility. The markets will try to test the limits, and the bank is insistent on conditionality: it will buy bonds only if those governments agree to meet economic conditions, on debt limits, for example, or structural reform.

The bank is insistent on intervening only on short-term debt, while longer-term bonds should be bought by the bailout funds, which are themselves limited in size — and too small to cope with a full-scale bailout of Spain or Italy, let alone both of them.

The bank, Ms. Greene said, “is building a bridge to a bridge” — to give policy makers time to come up with a real response to the euro zone crisis — “a clear and credible road map to a fiscal and banking union.”

If the politicians can do that, the bank is likely to be even more adventurous, but Mr. Draghi and the director of the International Monetary Fund, Christine Lagarde, have both made it clear that their institutions cannot and will not take the place of political leaders, who must agree on how to restructure the European Union and the euro zone to reduce economic imbalances, create growth and enforce sustainable economic policies.

Spain, which has received approval for a $123 billion bank bailout, has been reluctant to ask for bond-buying help because Prime Minister Mariano Rajoy is nervous about the conditions that might be imposed and the political reaction to them. But many expect Spain to seek help after the permanent bailout fund is set up and before a big rollover of debt on Oct. 19.