Last week, months of hand wringing in Brussels about how to save the fortunes of both Greece and the euro came to a seemingly face-saving end with the announcement of a euro 30 billion bail-out package agreed to by the 16-member eurozone countries. The rescue package would be jointly administered by the International Monetary Fund (IMF), despite initial European reluctance to involve “outside” agencies, bringing the total available to Athens to euro 45 billion.
Although Greece has not yet formally asked for the aid mechanism to be activated, the government in Athens has called for “discussions” on the proposed package with the European Commission, the European Central Bank and the IMF.
In response, EU economics commissioner Olli Rehn announced he will dispatch a delegation to Athens for talks next Monday. The signs that the debt drama is reaching its dénouement are flashing clear.
Yet, the road to rescue remains far from obstacle free. The devil lies in the as yet still ambiguous details of the package and in Germany, the eurozone country with the most capacious wallet and heftiest surplus.
One of the unclear issues is the comparative interest rate that would be charged by the eurozone as opposed to the IMF. It appears that the eurozone expects 5 per cent interest on a three-year fixed loan, a rate that is substantially higher than that charged by the IMF which analysts say could be about 3 per cent.
It also looks as though Greece will not be able to request access to the IMF money first, a sensible choice given the lower interest rates, but that the “mechanism” must perforce be jointly activated with funds co-disbursed at a 2:1 EU-IMF ratio.
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It is also uncertain how the rescue package will be activated once Greece makes a formal request for the money. Unanimity from the 16 eurozone governments would be required but how each government will come to a decision is not known.
The most formidable impediments could come from Germany, where the idea of a Greek bail out has been deeply unpopular. With an important state election coming up in May, the German Chancellor Angela Merkel has been sending out confused signals ever since the crisis first blew up.
In January, the German government was “not considering” financial aid to help Greece. In February, Ms Merkel agreed that eurozone members should take “determined and coordinated action” to defend Greece, but refused to elaborate what that would mean plus opposed any role for the IMF. By March she was insisting that any bail out must include the IMF and that countries that broke eurozone fiscal rules should face expulsion.
Germany’s share of the rescue package is estimated at a hefty 8.4 billion euros. One googly that could upset the workings of the mechanism has just been bowled with a quartet of German professors preparing to challenge the package at Germany’s constitutional court, claiming that it violates the “no-bail-out” clause of the EU Treaties.
The move comes amidst warnings in the German press that the bail-out bill may end up being three times higher than expected, pushing the EU contribution to 90 billion euro, of which Germany would once again be expected to make up the lion’s share. A spokesperson for the German finance ministry has also said that the German Parliament would probably need to approve the country’s contribution to the mechanism, which could delay, if not upturn, the rescue cart as well.
The markets have taken heed of these question marks over Greek’s rescue with the euro falling against the dollar on Thursday and again on Friday morning, after an initial rally following the announcement of the package last Sunday. For Greece and the euro, the roller coaster ride is far from over.