BERLIN, Germany — Ahead of next week’s EU summit, pressure on Berlin is coming from all sides to dig deeper into its pockets to help Greece, but it is putting up fierce resistance.
Germany, the biggest and richest country in the euro zone, has provided the bulk of the funds for the bailouts of Ireland, Portugal and Greece. Now it is firmly rejecting calls to come up with yet more funds for Greece to compensate for any shortfalls in a debt relief deal with private creditors.
On Friday Foreign Minister Guido Westerwelle defended Berlin’s tough stance. The Greeks, he insisted, should show that they are willing to implement reforms before getting more money.
“We Germans do not expect from anyone in Europe more than what we are asking from our own citizens. We cannot explain to taxpayers in Germany that they have to do things that others do not want to do while at the same time asking for their money,” Westerwelle said in Brussels.
He pointed out that Germany had already come up over 200 billion euros ($262 billion) for the bailout funds. “It makes no sense” he said, to give more money to Greece, “if we don't know whether the reforms which have been agreed upon will be really implemented.” He argued that coming up with more money just lessened the pressure to reform.
Negotiations are continuing in Athens with private creditors to find a way of cutting the amount of private sector debt Greece has to pay back. Olli Rehn, the EU Commissioner for Economic and Monetary Affairs, said Friday that a deal was “very close.”
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Greece needs a deal with private creditors before it can access a second bailout of 130 billion euros from the troika of the EU, ECB and IMF, ahead of a major bond redemption in March. The private bondholders have agreed in principle to a 50 percent haircut through a debt swap deal, but the two sides have yet to agree on the interest rate for the new bonds.
While it is hoped that they will reach a deal soon, there is a growing realization that it will be insufficient to cut Athens’ debt in accordance with policymakers' goals, from the current 160 percent to 120 percent of GDP by 2020. It is likely that any agreement will still leave a funding gap of 12-15 billion euros. The country’s private creditors want the ECB to contribute to the deal by also taking a loss on the bonds it holds.
Rehn conceded Thursday that more public sector financial support may be required even if a deal is reached. “There is likely to be some increased need of official sector funding, but not anything dramatic.”
And Jean-Claude Juncker, who heads the Eurogroup of euro zone finance ministers, told Austrian newspaper Der Standard that euro zone members may have to increase their support for Athens. “If Greece’s ability to sustain debt is proven and there is an overall understanding within the private sector, then the public sector will have to ask itself if it will not provide help,” he said, in an interview published Friday.
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In a separate interview with the German business daily Handelsblatt he said that it was not “totally absurd” to suggest that the ECB and euro-zone states might be forced to take a loss on Greek debt.