IMF Role in Greek Fiscal Rescue Gains Support in EU (Update1)
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March 25 (Bloomberg) -- German Chancellor Angela Merkel speaks to lawmakers about the outlook for measures to aid Greece's economy. She speaks in Berlin ahead of a summit of European Union leaders. (These are translated German excerpts. Courtesy Pool TV Berlin. Source: Bloomberg)
March 25 (Bloomberg) -- Bill Gross, manager of the world's biggest mutual fund at Pacific Investment Management Co., talks with Bloomberg's Tom Keene and Michael McKee about the Greek financial crisis. Gross also discusses U.S. health-care policy and the U.S. and U.K. budget deficits.
March 25 (Bloomberg) -- Simon Grose-Hodge, an investment strategist at LGT Group, talks with Bloomberg's Linzie Janis about the outlook for the euro ahead of a European Union summit today. Grose-Hodge, speaking in Singapore, also discusses the role of the International Monetary Fund in euro-member economies.
By James G. Neuger
March 25 (Bloomberg) -- European leaders showed signs of bowing to German demands for an International Monetary Fund role in any rescue of debt-stricken Greece, seeking to prevent the fiscal crisis from undermining the euro.
Asserting her clout as head of the European Union’s largest economy, German Chancellor Angela Merkel has pushed for the IMF to be brought in, while counterparts, including Spain’s Jose Luis Rodriguez Zapatero, said Europe should show its credibility by stanching the crisis on its own with loans to Greece.
“I believe that now we are quite near,” Finnish Prime Minister Matti Vanhanen said in a Bloomberg Television interview in Brussels today. “It might be some type of combination of bilateral arrangements and IMF participation.” He declined to speculate whether the EU will make a final decision at the summit, which ends tomorrow.
Signs that Greece may win a financial backstop gave a lift to Greek bonds and nudged the euro up from a 10-month low. The European Central Bank contributed to the rally by announcing a policy reversal ensuring that Greek debt won’t be struck off its collateral list next year.
Greece needs to sell about 10 billion euros ($13 billion) of bonds in coming weeks. About 8.2 billion euros of debt matures April 20 and 8.5 billion euros on May 19, with about 3.9 billion euros of bills maturing in April and May.
Goldman Sachs Group Inc. estimates that Greece may ultimately get aid from the IMF worth about 20 billion euros over 18 months, according to an e-mailed note today.
‘Mixed Model’
“We are going in the direction -- in case it’s even necessary to help -- toward a mixed model of IMF and bilaterial help” for Greece, Austrian Finance Minister Josef Proell said in Brussels.
The gain in Greek bonds sent the 10-year yield down 8 basis points to 6.28 percent, 316 basis points above comparable German debt. That extra borrowing cost has risen from 273 basis points on Feb. 11 when the EU vowed “determined and coordinated action” to stanch the crisis. The euro gained 0.3 percent at $1.3355 at 4:05 p.m. in Brussels.
“We will move ahead whatever decisions are taken,” Greek Prime Minister George Papandreou told reporters today in Brussels. “Greece is determined to deal with its own problems,” he said, adding that “we are on the right track.”
Greek Cuts
The Greek government is counting on wage cuts and tax increases to shave the deficit to 8.7 percent of gross domestic product this year from 12.7 percent in 2009, the highest in the euro’s 11-year history.
The summit begins at 5 p.m., though at the last meeting on Feb. 11 a political declaration to back up Greece was made before the official start. A separate gathering of euro-area leaders may be held afterwards, beginning at about midnight.
Dutch Prime Minister Jan Peter Balkenende endorsed an IMF role and Zapatero, the Spanish prime minister, didn’t rule one out, brushing aside criticism that recourse to the Washington- based lender of last resort would expose Europe’s inability to get to grips with the crisis.
“We should start with the IMF because the IMF has the expertise to act,” Balkenende told reporters in Brussels.
Merkel has opposed making a firm aid commitment today and opposed holding a separate get-together of the leaders of the 16 countries using the euro.
“A good European is not necessarily one who rushes to assist,” Merkel told German lawmakers in Berlin today before arriving in Brussels. “A good European is one who abides by the European treaties and national law and thus sees to it that the euro zone’s stability isn’t harmed.”
Sanctions Sought
While the euro’s German-designed “stability pact” foresees financial penalties for countries that go over the limits, no country has been sanctioned since the currency debuted in 1999. The budget deficits of all 16 euro nations are forecast to exceed the EU’s limit of 3 percent of GDP this year after the worst recession since at least World War II.
Merkel has left open the possibility of pushing wayward countries out of the euro and sought a rewrite of European treaties to impose more fiscal rectitude. All 27 EU countries would have to back such an overhaul. The EU’s latest treaty, in force since December, took eight years to negotiate and ratify.
Poul Nyrup Rasmussen, a former Danish premier and leader of the Party of European Socialists, said Germany’s proposal for a last-resort Greek aid package of loans from the IMF and EU was a “poor solution.”
Socialist Proposal
The Socialists proposed giving euro-region countries access to the same EU facility that provided loans to Hungary, Romania and Latvia during the financial crisis. Such a decision would require a unanimous EU decision and possibly a change to EU treaties.
“If the only answer from Europe is to ask the IMF to help us, then we are really, really, really poor,” Rasmussen, whose group includes Papandreou and Zapatero, said. “It’s a poor solution for Europe that we cannot manage on our own.”
ECB President Jean-Claude Trichet took some pressure off Greece today by extending emergency lending rules, saying its bonds won’t be cut off from ECB refinancing operations next year in case Moody’s Investors Service lowers its rating to a level comparable with other companies.
Trichet’s remarks marked a reversal for the ECB, which said in January that it wouldn’t soften its collateral policy for the sake of a single country. The bank was scheduled to reintroduce pre-crisis rules at the end of 2010.
To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net
Last Updated: March 25, 2010 11:41 EDT
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