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Even Germany wants to avoid Greek tragedy


German Chancellor Angela Merkel speaking in Singapore earlier this month

German Chancellor Angela Merkel speaking in Singapore earlier this month

German Chancellor Angela Merkel speaking in Singapore earlier this month

German Chancellor Angela Merkel faces intense domestic pressure to win concessions from Athens which will involve private sector investors in a new aid deal for Greece.

But for all the high drama, the risks of a rebellion in parliament against further assistance are extremely low despite the mutterings of discontent.

There has been plenty of tough talk from a vocal minority of Bundestag backbenchers, nonetheless the iron chancellor still retains broad support within her coalition and among key opposition leaders for her stance that Greece should receive additional support to avert a wider disaster for the eurozone.

Several politicians from the ruling parties described that support as strong despite rising scepticism about whether more aid for Greece would solve the country's debt problems.

Some of these parliamentarians said privately that a "hard" restructuring of Greek debt involving substantial losses for private holders of bonds was probably inevitable.

But even they admitted that going down this path now carried too many risks -- both economic and political.

"There is a widespread feeling of helplessness among members of parliament," a lawmaker from Merkel's conservative camp said.

"Nobody is really enthusiastic about new financial aid for Greece. There are lots of doubts about whether giving them billions more euro will help. But the problem is that no one wants to be blamed for standing in the way of aid if that leads to something dramatic."

As a result, lawmakers are pushing Merkel to link new aid to ultra-strict conditions in the hope this will make a new package easier to sell to German taxpayers.

These conditions include external supervision of Greece's privatisation programme, some form of private sector involvement in the package, and clear guidelines in the eurozone's planned new bailout mechanism spelling out that all holders of Greek debt could be asked to shoulder losses in the future.

Merkel is expected to push hard on all three points at a June 24 summit of European Union leaders, where governments are expected to discuss and possibly approve a new deal that would effectively replace the €110bn aid-for-austerity deal which Greece secured in May last year. That package is now widely seen to have failed because it mistakenly assumed Greece would be able to return to the capital markets for funding next year.

A new bailout of Greece would need to be approved by all governments in the 17-nation eurozone and it would face some political opposition in several northern European donor countries.

TO keep German lawmakers on board for more aid, the government has been using a carrot-and-stick approach, promising them a greater say in future EU aid decisions, while at the same time warning in clear terms about the risks of vetoing a new Greek package.

That strategy has worked well. None of the leading parties in the Bundestag, including the opposition Social Democrats and Greens, have been willing to oppose more aid for fear of being blamed for the "catastrophe" European policymakers have warned could result.

Merkel's allies have stepped up their rhetoric in recent days about the tough concessions they expect from Greece to reinforce the message that Athens will get no free ride.

"Greece is trying but its efforts are insufficient," Volker Kauder, parliamentary floor leader for Merkel's Christian Democrats (CDU), told 'Bild' newspaper yesterday, saying it was time the country resigned itself to "central European" living standards.

Merkel will probably be under no formal obligation to ask parliament to vote on a new aid deal for Greece if, as expected, it is handled by the European Financial Stability Facility.

But bypassing the Bundestag could be politically suicidal for her and she is already going out of her way to involve parliamentarians in the decision-making process.

Merkel and her Finance Minister Wolfgang Schaeuble will brief ruling party parliamentarians on the Greek situation tomorrow.

On Friday, parliament will vote on two non-binding resolutions related to the crisis. Coalition officials said these resolutions were likely to set policy guidelines for Merkel on Greece and the bloc's new rescue facility before she heads to the EU summit later this month.

Lawmakers say the best way to ensure widespread support will be for the government to get some form of private sector participation in a new Greek deal. "We have to ensure there is at least a first step in this direction," a leading parliamentarian from one of the ruling parties told Reuters. But that may be the toughest goal for Merkel to deliver on in Brussels later this month.

She has made clear in private that a reprofiling of Greek debt -- asking holders to extend the maturities of their bonds -- is not an option because it could be seen by ratings agencies as a default.

The only alternative seems to be a debt rollover in which banks that hold Greek bonds are encouraged to buy more as their holdings mature. But Germany will have to spell out at the June 24 summit how this can work in practice.

Germany's most important demand heading into the summit is for the inclusion of clear guidelines on private sector involvement in bailouts handled by the eurozone's planned new rescue facility, the European Stability Mechanism, which is to go into force from mid-2013.

With less than three weeks to go until the Brussels summit, a majority of eurozone countries and the European Central Bank are fighting the inclusion of such language. But Merkel has described this as a "red line" for Germany.

Merkel also supports the view that Greece's €50bn privatisation programme should be overseen by international monitors. Securing victories in Brussels on most if not all of these demands should be enough to ensure approval at home.

Irish Independent