Merkel’s comments in a closed-door briefing to German lawmakers on the eve of today’s European Union summit came as EU leaders seek to break a deadlock by a March 25 deadline on reinforcing their bailout plan and coordinating economic policies, said four lawmakers who attended the session of the parliament’s European Affairs Committee in Berlin.
Her willingness to back what she called a moderate reduction in the cost of the rescue loans sought by Greece and Ireland marked a turnaround. The comments followed the first acknowledgement by her government yesterday that an expansion of the European Financial Stability Facility to lend its full capacity was on the table.
“It is a difficult negotiation and the negotiations are not over,” Greek Prime Minister George Papandreou told reporters in Paris yesterday after meeting French President Nicolas Sarkozy. Papandreou met Merkel in Berlin on Feb. 22 in a bid to persuade her to support an easing of lending terms.
At a March 4 meeting of their European People’s Party, Merkel rebuffed a plea by Irish Prime Minister Enda Kenny to cut the cost of last year’s 85 billion-euro ($117 billion) bailout, saying “relief isn’t the issue.” Kenny wants to lower the 5.8 percent interest rate on aid loans and end the protection of senior bank bondholders.
‘Market Focus’
The public negotiating suggests today’s meeting, which is set to focus on coordinating economic policies, won’t “result in any tangible measures,” said UBS AG economist Beat Siegenthaler in a note today. “But it will bring the eurozone debt crisis back into market focus, particularly amid ever- widening spreads of peripheral sovereign bonds.”
Bond yields in Portugal and Greece touched euro-era records this week and Moody’s Investor Service lowered Spain’s credit rating by one notch today with a negative outlook. The euro fell 0.8 percent to $1.3798 at 8:35 p.m. in Berlin.
As part of the quest for a comprehensive plan to stem the debt crisis, the EU is nearing agreement on a plan to be put to today’s summit to raise the region’s competitiveness and tighten economic cooperation, German and French officials said.
The pact, which includes chapters on competitiveness, labor, sustainable public finances and the stability of financial systems, sets objectives rather than binding targets, leaving countries free find their own policy mix, the officials said on condition of anonymity because the talks are not public.
The original plan proposed by Merkel and French President Nicolas Sarkozy on Feb. 4 ran into opposition. Luxembourg and Belgium rejected suggestions to scrap wage indexation.
German Elections
Merkel has been hemmed in by state elections and EU resistance to her calls for greater economic-policy coordination. In a March 9 speech, she said EU nations must adhere to fiscal rules to spur growth.
“We can’t give ourselves rules and then have some repeatedly flouting these rules,” Merkel said at a rally of her Christian Democratic party in Demmin, northern Germany.
Speaking to lawmakers yesterday, she signalled a willingness to compromise on several issues, including interest rates on aid loans to proposals to expand the scope of the current temporary rescue fund, said participants.
She set a proviso that any about-turn by Germany over interest paid by Greece and Ireland for aid be tied to strict conditionality, said the participants.
Merkel indicated support for raising the EFSF’s effective lending capacity to its headline figure of 440 billion euros and for making sure that the facility replacing it in 2013 can pay out the full 500 billion euros if needed, the lawmakers said.
Still, Merkel won’t support bond buying in the secondary market by the EFSF and the future permanent rescue fund, she told lawmakers. The post-2013 fund can only be allowed to dispense aid as a last resort, she said.
source: Bloomberg
