Berlin not budging on Greek bailout, as GDP plummets (Updated)
GREECE, ATHENS-FEBRUARY 13: Headquoter of Bank of Greece building in central Athens on February 13, 2012. Global markets climb after Greek lawmakers approve radical budget cuts vital to secure a 130 billion euro rescue package aimed at averting bankruptcy, after a day of street battles left dozens injured and Athens buildings ablaze.
BERLIN — Greece can be under no illusion when it comes to Germany’s determination to see that it stick to its pledges or suffer the consequences.
The tone from Berlin ahead of Wednesday’s crucial meeting of euro zone finance ministers is stern: Athens needs to stick to its commitments and find the extra savings needed to secure a second bailout.
UPDATE: Citing further technical work, Eurogroup president Jean-Claude Juncker announced that he is cancelling Wednesday's meeting of European finance ministers, and is holding a conference call instead. In a statement, he said "Further technical work between Greece and the troika is needed in a number of areas, including the closure of the fiscal gap of € 325 million euro in 2012 and the debt sustainability analysis." He added that he was still waiting for "required political assurances" from Greek coalition party leaders that they would stick to the austerity plan. Junker's move added to the intense pressure already exerted on Greece.
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“We want to do everything to help Greece master this crisis,” Finance Minister Wolfgang Schaeuble told public broadcaster ZDF late on Monday night. He stressed, however, that “Greece itself of course must want that.” If Athens were in fact to default, he added, “we’re better prepared than two years ago.”
In May 2010, the euro zone came to Greece’s rescue with a 110 billion ($144 billion) euro bailout, yet it is now suffering its fifth year of recession. Athens requires more help from its European partners to stay afloat.
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The Greek parliament approved yet another painful set of deeply unpopular austerity measures Sunday that international lenders have insisted upon before extending a lifeline to the highly indebted country. Yet Germany, the euro zone’s paymaster, has signalled frustration at Greece's inability to meet previous pledges.
Last week, the Eurogroup told Greece that it had to come back on Wednesday with another 325 million euros worth of cuts on top of the austerity package negotiated last week with international lenders.
Germany has refused to consider expanding the second bailout worth 130 billion euros, which Greece urgently needs if it is to avoid bankruptcy in mid-March when a 14.5 billion bond repayment is due.
On Monday, Chancellor Angela Merkel insisted that the austerity plan has to be implemented. “There cannot and will not be any changes to the program,” she said.
The package of cuts and reforms was hammered out with the troika of lenders – the European Union, the European Central Bank and the International Monetary Fund — and is designed to slash Greece’s deficit to a more-sustainable 120 percent of GDP from the current 160 percent. Meeting that goal will be difficult, however.
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“This is not just about saving but, in addition, structural reforms that will help the creation of better institutions, such as for privatizations and tax collection,” Merkel told reporters in Berlin.
Yet German-imposed austerity could be backfiring. On Tuesday, the latest figures showed that Greece’s economy shrank 7 percent in the fourth quarter of 2011 compared with a year earlier.