ECB and Germans row over Greek debt crisis
DIVISIONS over what to do about Greece surfaced yesterday as a director of the European Central Bank (ECB) said EU countries were preparing to assist Greece with its public finances, and the head of a major German think-tank said they should do no such thing.
The comments came as leading ratings agency Fitch downgraded Greece's largest banks to one notch above 'junk' status and warned a cut to this level was on the cards.
ECB executive board member Lorenzo Bini Smaghi said Europe "will help Greece save itself". He added: "This may also mean that money is needed." German magazine 'Der Spiegel' has reported that Berlin wants euro-area governments to provide Greece with loans and guarantees of up to €25bn, if Athens delivers measures to cut the government deficit.
"The amount will be more limited than what has been reported," Mr Bini Smaghi said.
But the boss of Germany's Ifo economic institute launched a scathing attack on the idea of a bailout for Greece, saying the country was blackmailing its European neighbours.
"Greece should never have entered the euro zone because they did not qualify and they are now blackmailing the other European countries via the euro," Hans-Werner Sinn said in an interview in Brussels.
"It's not a matter for the EU to help Greece," Mr Sinn said.
"For this, we have an institution that is very experienced in bailing-out activities, which is the IMF. The IMF has offered its help to Greece and Greece should take it."
German Chancellor Angela Merkel renewed her criticism of market speculation against the euro, saying that financial institutions bailed out with public funds are exploiting the budget crisis in Greece and elsewhere.
She took a different view from Mr Sinn, saying a solution to the Greek crisis is the core element in re-establishing confidence in the single currency.
"The debt that had to be accumulated, when it's going badly, is now becoming the object of speculation by precisely those institutions that we saved a year and a half ago," Ms Merkel said.
"That's very difficult to explain to people in a democracy," she added.
Meanwhile Harvard University professor Kenneth Rogoff, who warned of the threat to US banks, said the banking crisis is likely to force several countries to default on their debts.
"Following banking crises, we usually see a bunch of sovereign defaults, say in a few years. I predict we will again," Prof Rogoff, a former chief economist at the IMF, said.