GERMANY HAS moved to calm fears that Chancellor Angela Merkel would skip Thursday’s emergency EU summit, confirming her attendance and expressing confidence that leaders can agree a second Greek aid package.
Amid a nervous sell-off of Italian and Spanish bonds, Bundesbank president Jens Weidmann gave an urgent warning yesterday that the euro zone cannot afford another summit fudge.
"To stop the uncertainty the euro zone states have to show urgently that they are able to act," said Mr Weidmann to the Handelsblattbusiness daily.
After resisting a Brussels trip last week, Dr Merkel alarmed other EU leaders by remarking at the weekend that she would only go to Brussels if there was something to be agreed.
That left her spokesman Steffen Seibert to row back yesterday.
“If there is a summit the chancellor will always attend. We have to master this challenge,” he said. “The hope is that it’s possible on Thursday to agree a package for Greece with all relevant details.” The tension reveals differing understandings in Brussels and Berlin about the emergency summit.
For European Council president Herman Van Rompuy, the summit is an attempt to force a solution before the summer break.
Berlin sees things differently, worried that the EU president was putting the cart before the horse by calling a summit before a clear technical solution was on the horizon. The German thinking was that markets would be more unsettled by another indecisive EU summit than no summit at all.
On Sunday evening Dr Merkel told German television that any deal would be linked to Greece “doing its homework” on reforms and private creditors being “brought into the fold”.
“The more we get private investors voluntarily involved now, the less likely we will have to take further steps,” she said. “What we want is as few measures as possible. A restructuring could have a negative effect that countries don’t make as much effort.”
Asked if she supported the idea of restructuring Greek debt she said she “wasn’t working in that direction” but didn’t rule it out.
European Central Bank (ECB) president Jean-Claude Trichet reiterated yesterday the possible dangers of allowing a Greek default.
Even a partial Greek default would force the ECB to stop accepting Greek sovereign bonds as security, he said, leaving “the governments to make sure that the euro system is provided with securities it can accept”.
"The euro zone governments have been warned, loud and clear," said Mr Trichet to the Financial Times Deutschland.
German sources say officials are working around the clock before Thursday’s meeting, fleshing out three technical proposals to help reduce Greece’s €340 billion debt burden.
The first would see the euro zone lend Athens money to buy back debt at a write-down of the purchase price, thus allowing indirect private sector involvement in the rescue measures.
For instance, an investor who bought Greek sovereign bonds for €100 would today receive €80 on the market; if Greece was given money to buy those bonds it would clear €100 of debt for just €80.
Several of Dr Merkel’s economic advisers have described Greek restructuring as “unavoidable”. Berlin’s opposition Social Democrats yesterday offered their support for the buy-back proposal, urging Dr Merkel to make “necessary if unpopular” European decisions – including a restructuring on Greek debt of up to 50 per cent.
“It’s important that this summit agrees measures that are wide-ranging and effective,” said Peer Steinbrück, former finance minister in Dr Merkel’s first administration, saying the euro zone could no longer refinance away its problems. “The danger of contagion for other countries are larger than ever before.”
A second summit proposal would give European Financial Stability Facility powers to buy up Greek bonds directly from Athens, rather than through the market.
The third proposal is a revised version of a Franco-German proposal to extend the maturities on bonds by seven years, giving Athens breathing space without any default diagnosis by analysts.
Criticism continued to rain down on Dr Merkel yesterday, with former European Commission president Romano Prodi warning that the end of the euro would mean the “death of the EU”.
He reserved special criticism for large countries “preoccupied with themselves”.
"Who is accepting responsibility for common European interests? No one," he told Austria's Profilmagazine. "The Germans see themselves as martyrs and overlook that the euro has made them a lot stronger than before. Angela Merkel should do much more for European interests."
Picking up on that growing criticism, German foreign minister Guido Westerwelle said: “We Germans will make a clear show of support for Europe. Without the euro, it would be downhill for Germany.
