Mixed messages over Greek deal
Source: Agencies |
July 28, 2011, Thursday
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Print Edition
Print Edition
CONTRASTING statements by eurozone politicians to domestic audiences have underlined the fragility of last week's deal to rescue Greece and unsettled financial markets already on edge because of the United States' debt impasse.
Greek Prime Minister George Papandreou told lawmakers from his Pasok socialist party yesterday that debt-stricken Athens will effectively receive the first joint eurobonds in the form of loans at close to cost price from the eurozone's rescue fund.
"The decision of our European partners to lend us at 3.5 percent, an interest rate just above the one at which Germany itself is borrowing, is in essence tantamount to introducing a European bond, regardless of the fact that this system has not been completed yet," he said.
His comments may inflame critics of eurozone bailouts in Germany and other northern European countries, who vehemently oppose any mutualization of fiscal risk in the 17-nation single currency area. The remarks may also irk Spain and Italy, indebted economies that are paying high yields on their bonds.
Germany, which previously insisted on charging an interest rate premium on "deficit sinners" to deter moral hazard, relented at last week's summit and accepted that the high borrowing rate was counter-productive for countries mired in recession.
But common eurozone bonds remain anathema in Berlin, where fiscal conservatives are warning against the eurozone becoming a "transfer union" in which German taxpayers' money would pour into a bottomless pit.
German Finance Minister Wolfgang Schaeuble sought to assuage critics in the ruling coalition, assuring lawmakers that the summit did not give the eurozone rescue fund "carte blanche" to buy bonds of states in difficulty. "The government rejects a 'carte blanche' for widespread purchases on the secondary market," Schaeuble said in a letter dated July 26.
The summit agreed to allow the European Financial Stability Facility to give precautionary credit lines to states at risk of being shut out of credit markets, to lend governments money to recapitalize banks and to buy bonds on the secondary market in exceptional circumstances.
In contrast to Schaeuble, Papandreou highlighted the extent to which those moves put the eurozone on the road to joint debt management. "The bond buybacks in the secondary market are something we sought for a long time," he told legislators.
The cost of insuring Italian and Spanish government debt against default rose after Schaeuble's comments and yields on most eurozone peripheral sovereign bonds were back around the levels before last week's summit.
Greek Prime Minister George Papandreou told lawmakers from his Pasok socialist party yesterday that debt-stricken Athens will effectively receive the first joint eurobonds in the form of loans at close to cost price from the eurozone's rescue fund.
"The decision of our European partners to lend us at 3.5 percent, an interest rate just above the one at which Germany itself is borrowing, is in essence tantamount to introducing a European bond, regardless of the fact that this system has not been completed yet," he said.
His comments may inflame critics of eurozone bailouts in Germany and other northern European countries, who vehemently oppose any mutualization of fiscal risk in the 17-nation single currency area. The remarks may also irk Spain and Italy, indebted economies that are paying high yields on their bonds.
Germany, which previously insisted on charging an interest rate premium on "deficit sinners" to deter moral hazard, relented at last week's summit and accepted that the high borrowing rate was counter-productive for countries mired in recession.
But common eurozone bonds remain anathema in Berlin, where fiscal conservatives are warning against the eurozone becoming a "transfer union" in which German taxpayers' money would pour into a bottomless pit.
German Finance Minister Wolfgang Schaeuble sought to assuage critics in the ruling coalition, assuring lawmakers that the summit did not give the eurozone rescue fund "carte blanche" to buy bonds of states in difficulty. "The government rejects a 'carte blanche' for widespread purchases on the secondary market," Schaeuble said in a letter dated July 26.
The summit agreed to allow the European Financial Stability Facility to give precautionary credit lines to states at risk of being shut out of credit markets, to lend governments money to recapitalize banks and to buy bonds on the secondary market in exceptional circumstances.
In contrast to Schaeuble, Papandreou highlighted the extent to which those moves put the eurozone on the road to joint debt management. "The bond buybacks in the secondary market are something we sought for a long time," he told legislators.
The cost of insuring Italian and Spanish government debt against default rose after Schaeuble's comments and yields on most eurozone peripheral sovereign bonds were back around the levels before last week's summit.
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