Greek Prime Minister George Papandreou set a one-week deadline for the European Union to craft a financial aid mechanism for Greece, challenging Germany to give up its doubts about a rescue package.
Papandreou said he may turn to the International Monetary Fund to overcome the debt crisis unless leaders agree to set up a lending facility at a summit March 25-26. The IMF option has already been dismissed by European Central Bank PresidentJean- Claude Trichet and French President Nicolas Sarkozy, who say it would show the EU can’t solve its own crises.
“It’s an opportunity to make a decision next week at the summit,” Papandreou told reporters in Brussels today. “This is an opportunity we should not miss. When you have that instrument in place, that could be enough to tell the markets hands off, no speculation, let this country do what it’s doing.”
Greece pinned its hopes on the Brussels summit as German officials voiced qualms about an EU-led rescue, potentially backtracking on a commitment hammered out by finance ministers just three days ago. Greek bonds and the euro fell.
Greece, which was brought to a standstill on March 11 by the second general strike this year, needs to raise about 10 billion euros ($14 billion) to refinance bonds that come due on April 20 and May 19. Papandreou said current market rates are unsustainable.
Brinkmanship
The yield on Greece’s 10-year government bond rose 12 basis points to 6.21 percent. The euro fell for a second day against the dollar, slipping as much as 0.7 percent to $1.3648. Credit- default swaps on Greek sovereign debt rose 7 basis points to 295, the highest in a week, according to CMA DataVision prices.
“There’s a good deal of brinkmanship involved to get the EU and euro group members to come up with a more concrete plan,” saidKlaus Baader, co-chief European economist at Societe Generale in London. “It’s also directed at capital markets, to reassure markets that Greece is not about to go into default.”
German Chancellor Angela Merkel yesterday ruled out “overly hasty” aid pledges, shifting the pressure back to Greece to fix Europe’s biggest budget deficit. Signs of a split in the German government emerged after Finance Minister Wolfgang Schaeuble endorsed the use of European channels at an EU meeting on March 15.
‘Daring Experiment’
Attempting a rescue of Greece “without the IMF would be a very daring experiment,” Michael Meister, financial affairs spokesman for Merkel’s Christian Democratic Union, said in an interview yesterday. “Nobody apart from the IMF has these instruments.”
The risk premium on Greek 10-year bonds has more than doubled since the beginning of November on concern about the country’s ability to bring down last year’s deficit of gross domestic product, the largest in the euro’s 11-year history.
Papandreou’s government has passed three packages of deficit reduction measures this year to try to convince the EU and investors it is serious about bringing the deficit down to 8.7 percent of GDP.
Soaring Greek borrowing costs threaten to erode the fiscal gains made from forcing the country to make sacrifices including wage and benefit cuts for public workers, Papandreou said.
“We are under a basically IMF program, whether it’s called that or not,” he told a European Parliament committee earlier. “We don’t have on the other hand facilities that the IMF would give. We don’t want to be in a situation where we have the worst of the IMF if you like and none of the advantages of the euro.”