German Chancellor Angela Merkel warned Greece today it would not be possible to give further aid without rapid progress on its second rescue package, including a voluntary write-down on Greek debt held by private creditors.
“We must see progress on the voluntary restructuring of Greek debt,” Merkel told a joint news conference with French President Nicolas Sarkozy in Berlin.
“From our point of view, the second Greek aid package including this restructuring, must be in place quickly. Otherwise it won’t be possible to pay out the next tranche for Greece.”
Merkel said she would talk about Greece with International Monetary Fund chief Christine Lagarde in Berlin on Tuesday.
Banks, insurers and investment funds have been negotiating with the Greek government for weeks on a bond swap scheme which aims to cut its debt-to-GDP ratio to 120 per cent from roughly 160 per cent currently.
Under the plan, private creditors are being asked to voluntary accept a nominal 50 per cent cut in the value of their Greek bond holdings in return for a mix of cash and new bonds, although there are suggestions that may not now be enough.
The private sector involvement is a key part of a new 130 billion euro bailout package that needs to be in place by March to ensure Greece does not default on its massive debt.
But talks are not progressing as fast as hoped. Complicating matters, European Central Bank policymaker Athanasios Orphanides called last week for the private sector deal to be scrapped and an adviser to the German finance ministry said plans for a 50 per cent writedown were insufficient.
The German and French leaders said they were making progress on a “fiscal compact” for closer convergence on economic policy in Europe to avoid future debt crises.
Berlin and Paris are looking at how to speed up payments into the euro zone’s permanent eurozone bailout scheme (European Stability Mechanism), which has been brought forward a year to mid-2012, Merkel added.
Sarkozy, who is trailing in opinion polls ahead of a two-round presidential election in April and May, is pushing aggressively for a new levy on financial transactions, or “Tobin tax”.
Britain says it will veto such a tax at EU level unless it is adopted on a global scale, fearful of the impact in the City of London financial centre. The issue could split the European Union at a summit planned for January 30.
Sarkozy vowed last week that France would push ahead with the tax unilaterally if other Europeans dither, and told reporters in Berlin: “If we don’t set the example, it will not be done.”
