Germany and France agree to back IMF aid for Greece
GERMANY and France have agreed to back International Monetary Fund (IMF) aid for Greece, a German finance ministry official said yesterday, signalling a joint position after weeks of dispute over how to resolve the Greek crisis.
The euro region's two biggest economies are now pulling together before a two-day EU summit in Brussels that will begin tomorrow.
Greece has pressed the EU to make specific commitments on aid in order to help reduce its borrowing costs.
Conflicting signals before the EU summit triggered three days of declines in Greek debt that drove the yield on 10-year bonds to 6.44pc yesterday, the highest since February 25.
"The German government is on the right track in pursuing close co-operation with France to help Greece help itself," Volker Wissing, chairman of the German parliament's finance committee, told reporters in Berlin.
Earlier yesterday, another German official ruled out stand-alone EU aid in the absence of a substantial IMF contribution.
Germany also wants to rewrite EU treaties in order to stiffen sanctions against countries that flout deficit limits, said the official, who was speaking on condition of anonymity.
Greece has warned in recent weeks that it may have to ask the IMF for financial aid -- which would be an embarrassing setback for European political union -- if it does not get any concrete support from EU leaders at Thursday's summit.
IMF involvement has become a divisive issue. It is supported by a German government that is adamantly against giving money to Greece and opposed by EU officials, who would like an internal solution.
Yesterday, however, a Greek official played down the threat.
"The IMF is one of many options which we have put to one side. We are in Europe, we want to stay there and we will stay there," said George Petalotis, a Greek government spokesman.
In Berlin, a German government official said several EU countries -- who are supporting Germany's tough line -- now appeared to be unopposed to IMF involvement in providing financial support.
The Greek government has said that unless it can borrow at more reasonable rates, it might have to turn to the IMF for help. It has also said that the outcome of the EU summit in Brussels will be crucial.
Athens is seeking details of a plan for help, should it become necessary, to convince markets it will not be allowed to default.
Such a blueprint could boost market confidence and reduce Greece's borrowing costs.
Greece's finance minister George Papaconstantinou also said he looked forward to a "positive outcome" in Brussels, but added: "Regardless of this outcome, Greece will be totally able to continue borrowing without difficulty . . . Greece is not coming to this debate as a beggar."
Greece has ordered major spending cuts and an overhaul of the tax system, promising to slash its budget deficit from an estimated 12.7pc of economic output in 2009 to 8.7 pc in 2010.
Greek bonds rallied yesterday. The 10-year yield dropped to 6.32pc, which is still more than double the yield on Germany's 10-year notes.