German Chancellor Angela Merkel is digging in against easing bailout conditions as haggling over a blueprint to end the euro debt crisis enters its home stretch.
With the European Union nearing its March 25 deadline for a reinforced plan to aid debt-strapped countries, Merkel has told parliamentary allies that a deal was unlikely on cutting rescue-loan rates, a sign that German officials are stepping back from a willingness to forge a grand bargain to protect the euro.
Hemmed in by state elections and EU resistance to her calls for economic-policy coordination, Merkel meets European allies in Helsinki tomorrow amid mounting speculation that Portugal will be the third country to seek a lifeline. Failing to forge a consensus on an anti-crisis plan threatens to roil the euro and extend declines in bonds of Spain, Italy and Ireland.
“People are increasingly braced for a disappointment,” Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group in London, said by phone. “We’re closer than we have been for a long time, but I don’t think the market is braced for peace between the core and periphery.”
Risk premiums for Spain, Portugal and Italy have increased since a February 4 EU summit that failed to endorse an economic competiveness plan proposed by Merkel and French President Nicolas Sarkozy as a condition for aid.
Rate discord
Underscoring the discord over the debt-fighting formula, officials at the meeting of European Conservative party leaders called by Finland include incoming Irish Prime Minister Enda Kenny, who wants to renegotiate the bailout, and Finnish Finance Minister Jyrki Katainen, who has signalled opposition to easing Ireland’s loan rate, which averages 5.8 per cent.
Merkel told the lawmakers in Berlin this week that she didn’t expect Ireland and Greece to accept the additional budget cuts she would demand in exchange for the concession on bailout rates, according to two officials at the meeting.
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EU leaders can’t “artificially reduce” the rates on aid loans, Merkel said yesterday at a joint briefing with Portuguese Prime Minister Jose Socrates. “If the Irish government now has a problem with interest rates, our job is to figure out what we can do — or whether we can do anything.”
Gone from statements by German officials is the flexibility signalled on January 25 by Deputy Finance Minister Joerg Asmussen. He said then that there was a “certain margin” on rescue loans that could be considered in exchange for commitments by governments to rein in debts and deficits.