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Friday 23 June 2017

Sarkozy opposes IMF loan to Greece

Helene Fouquet

French President Nicolas Sarkozy opposes Germany’s call for an International Monetary Fund loan to Greece, a French government official said, pitting the euro area’s biggest members against one another over a rescue plan.

The official, who declined to be named under government ground rules, said Sarkozy favoured a European solution to help Greece and said the monetary union must act to restore investor confidence and shrink Greek borrowing costs.

“I want to be very clear: if it were necessary, the states of the euro zone would fulfill their commitments,” Sarkozy said in Paris March 7 after a meeting with Greek Prime Minister George Papandreou. “There can be no doubt in this regard.”

The comments, coming the week before an EU summit in Brussels, follow a shift by German Chancellor Angela Merkel toward an IMF-led package for Greece, which is struggling to reduce Europe’s biggest budget deficit.

Merkel said this week that in the absence of a European lender of last resort, calling in the IMF “would probably have to be the way out right now if action were to be taken.”

Greek bonds fell as the EU divisions widened. The yield on the 10-year Greek bond rose 6 basis points to 6.32pc as of 1:10pm in London, the highest since February 26, according to generic data compiled by Bloomberg.

That pushed the risk premium investors demand to by 10-year Greek debt over comparable German bonds 320 basis points, a jump of 20 points the past two days.

The euro is closing out its worst week since January against the dollar, declining 0.4pc to $1.3553.

‘Brinksmanship’

“The markets been concerned about the game of brinkmanship that’s been there for the last few weeks,” said Steven Major, global head of fixed-income research at HSBC Holdings Plc in London.

“From the Greek perspective it’s all about the cost of the funding and at the moment, Greece is paying a lot more than at this time last year.”

Papandreou yesterday called on EU allies to give details on aid to Greece at next week’s summit, saying the country’s risk premium would decline if investors were convinced the EU stood behind Greece.

The IMF stands ready to respond to a Greek aid appeal, which hasn’t come yet, spokeswoman Caroline Atkinson told reporters in Washington yesterday.

Papandreou said he prefers a European solution and that the EU announcing more explicit support for Greece would be enough to bring down borrowing costs without the need to actually tap emergency funds.

Meanwhile, disagreements spread among European leaders.

Berlin tension

In Berlin, spokesmen for Merkel and Finance Minister Wolfgang Schaeuble, who helped negotiate a European aid framework this week, squabbled over an IMF role.

“You can assume that as far as the situation with Greece is concerned, the minister would view IMF assistance with great reservation,” his spokesman Michael Offer said.

In Brussels, European Commission president Jose Barroso and EU Economic and Monetary Commissioner Olli Rehn differed on the same topic.

Barroso was open to IMF aid, telling France 24 television that calling in the Washington-based lenders is “not a question of prestige.” Rehn told lawmakers today “it’s essential” that Europe take the lead.

Papandreou says Greece deserves better treatment from markets after presenting an austerity program on March 3 so harsh that it sparked the second national strike in less than two months.

“We are under a basically IMF program,” Papandreou said yesterday.

“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. We need the strong political support to make these necessary reforms and to make sure that we aren’t going to pay more than necessary.”

Bloomberg

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