Trichet in Berlin as Germans balk at Greek rescue
European Central Bank President Jean-Claude Trichet is on a diplomatic mission to Berlin as Germany’s reluctance to bail out Greece helps fan a fiscal crisis now burning around the euro region’s periphery.
Trichet and International Monetary Fund Managing Director Dominique Strauss-Kahn will brief German parliamentary leaders in Berlin around noon today about the €45bn aid package for Greece, which has met with opposition in Europe’s biggest economy.
The joint European Union-IMF package would require Germany to stump up the biggest individual loan to Greece.
“It’s a sales pitch in front of an audience that needs it,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group in London.
“The lawmakers probably need it spelled out that this is not about financing luxury pensions in Greece. Not helping Greece will unfortunately have a direct impact on the euro-area economy and German jobs.”
Standard & Poor’s yesterday cut Greece’s credit rating to junk status and slashed Portugal’s two notches, intensifying a bond market sell-off across the southern euro region amid concern that debt-ridden countries will struggle to refinance their loans.
The crisis has highlighted the absence of a common fiscal policy to cement Europe’s monetary union, frustrating Trichet’s efforts to promote a “common destiny” for its 16 members.
‘Why do we have to pay?’
“Why do we have to pay for Greece’s luxury pensions?” Germany’s biggest-selling tabloid newspaper, Bild Zeitung, asked on its front page yesterday. Almost 60pc of Germans don’t want to help Greece, Die Welt newspaper reported, citing a survey of 1,009 people.
German Finance Minister Wolfgang Schaeuble asked Trichet and Strauss-Kahn to speak with lawmakers to “facilitate direct insight into the actions as they stand.”
Trichet, Strauss-Kahn and Schaeuble will brief reporters on the talks at 2:30pm in Berlin, a finance ministry spokeswoman said.
Trichet declined to comment on the S&P downgrades yesterday.
In Greece, Prime Minister George Papandreou will speak at a conference entitled “Shaping the Agenda: In the face of a crisis for Greece and the EU.”
Trichet, who once called himself “Mr. Euro,” has been powerless to stop the currency’s 12pc slide against the dollar in the past five months as politicians haggle over aid for Greece.
While he presides over interest rates for the region, he has no say over how taxpayers’ money is spent.
Trichet’s appearance with Strauss-Kahn to promote the joint package comes less than two months after he dismissed the IMF’s financial involvement in a rescue package as inappropriate.
Trichet argued that money from the fund would show Europe is incapable of solving its own crises.
“Trichet can only give his opinion,” said David Milleker, chief economist at Union Investment in Frankfurt. “The ECB can’t do anything else. It’s up to the politicians now.”
German Chancellor Angela Merkel is facing a crucial state election on May 9, which could explain some of her reluctance to write a check for Athens, said Juergen Michels, chief euro-area economist at Citigroup in London.
“We’ve never been in a situation like this before so it’s not that unusual to have national interests supersede those of the euro area,” he said.
Merkel drew applause from an audience in North Rhine-Westphalia this week when she said that “Greece must do its homework” before getting any aid.
The problem is the crisis is now rapidly spreading, undermining confidence in the euro and even fueling speculation it could splinter.
“The most frustrating point in all of this is that those who followed the rules must now help out those who didn’t,” Cailloux said.
Ireland, Portugal and Spain are “conspicuously vulnerable” and may need funding, former IMF chief economist and Harvard Professor Kenneth Rogoff said in an interview this week.
Euro-region members are considering holding a summit to discuss releasing aid to Greece, an official from the Spanish EU presidency, who declined to be named in line with policy, said yesterday.
In the meantime, “it’s crucial for Trichet to regain his stature by reminding lawmakers that they are all in the one boat,” said Michels.
Trichet on April 12 said the ECB wants “the governments of the euro area to live up to their responsibility.”
“Their countries share a common destiny,” he said.