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Europe

Euro zone may ask IMF to take the lead in bailing out Greece

Text by News Wires

Latest update : 2010-03-25

Euro zone nations are nearing a deal brokered by France and Germany to give the International Monetary Fund the lead in lending Greece funds to resolve its debt crisis and will convene a special summit on Thursday ahead of EU-wide talks in Brussels.

AFP - Eurozone leaders moved to confront the Greek debt crisis with plans for a summit, only the second such gathering in their history, as divisions over a bailout for Athens shook the bloc's unity.
   
Greece's partners in the 16-nation eurozone were close to concluding an accord that would give the International Monetary Fund the central role in granting Athens loans, a European diplomatic source told AFP.
   
But the deal would also provide for tough sanctions for eurozone budget transgressors, in line with Germany's priorities, the source said.
   
The deal, which would see eurozone nations top-up the main IMF loan, was brokered between France and Germany.
   
It was due to be announced Thursday morning in Brussels at a specially convened summit of eurozone leaders called by EU president Herman Van Rompuy.
   
It would precede the full summit of 27 EU leaders on Thursday and Friday.
   
Germany's Chancellor Angela Merkel has held firm all week against calls from her European Union partners for the EU to take the lead role in helping Athens.
   
"The eurozone aid will only be forthcoming as a complement to IMF loans," the source underlined.
   
"It's mixed assistance, but the IMF will play a central role," added the source, who also stressed the German drive for tighter rules on eurozone members' budgetary management.
   
Germany wanted to "simplify complicated current procedures" and allow Brussels to trigger more automatic sanctions against countries that breached commitments on annual deficits and accumulated debt, said the source.
   
These penalties could include the loss of voting rights at European ministerial meetings and fines, the source added.
   
The deal appeared to show that while Merkel had resisted pressure to let the EU pay the lion's share of any bailout for the Greeks, she had conceded a limited European role rather than IMF intervention exclusively.
   
And there were signs earlier Tuesday that France too, in the face of Germany resistance, had stepped back from demands for full eurozone solidarity.
   
A French government source indicated that Paris was softening its resistance to a series of Merkel demands -- on IMF involvement, on timing and on the scope of sanctions that could be introduced.
   
"Different views" in Europe will "doubtless come together somewhere in the middle," a French government source said.
   
German parliamentary sources said Merkel had told lawmakers that compromise in Berlin was conditional on Greece first going to the IMF.
   
After days of growing pressure from EU partners, the Germany daily Die Welt reported that Merkel would sign up provided eurozone countries accepted stricter rules on budgetary management.
   
French President Nicolas Sarkozy and Spanish Prime Minister Jose Luis Rodriguez Zapatero on Tuesday backed Van Rompuy's call for a summit of Eurogroup leaders before the full EU gathering.
   
The markets meanwhile, were following developments closely.
   
In New York, the dollar rose against the euro on Tuesday amid uncertainty over European plans to help Greece.
   
The euro fetched 1.3482 dollars by 2000 GMT, down from 1.3560 dollars at 2200 GMT on Monday.
   
"The brinkmanship game in Europe is reaching a fevered pitch ahead of the EU summit later this week," Brown Brothers Harriman told clients Tuesday.
   
But other analysts saw the prospect of a eurozone resolution as limiting the euro's fall.
   
In Athens meanwhile, several thousand people again marched in protest at the austerity measures the government has introduced to tackle the country's massive debt.
   
The demonstration was called by the main civil service union Adedy, whose members have been hard hit by the government cuts.
   
Greek Prime Minister George Papandreou says his country faces the prospect of bankruptcy without some form of support, particularly to reduce the interest rate it is forced to pay to borrow money on international debt markets.
   
Greece has the highest deficit in the eurozone -- estimated at 12.7 percent of output in 2009 -- and risks a financial crunch as it needs to raise some 20 billion euros (27 billion dollars) for debt redemptions due by the end of May.

 

Date created : 2010-03-24

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