Page last updated at 18:35 GMT, Monday, 26 April 2010 19:35 UK

Will the European Union agree to help Greece?


By Rebecca Marston
Business reporter, BBC News

Protesters in Athens, March 2010
Greece has promised even more of the budget cuts that sparked protests like this one

It represents a half-sigh of relief - the International Monetary Fund (IMF) had warm words for Greece after its weekend rescue talks with the country's finance minister, George Papaconstantinou, in Washington.

The IMF's managing director, Dominique Strauss-Kahn, said he was "impressed" with the Greek's determination to clean up this mess and Mr Papaconstantinou said he expected the IMF board to approve its portion of a loan from the Fund and the eurozone countries by early May.

The exact size of the loan has not been divulged, but it is thought to be $20bn (£13bn, 15bn euro). At the very least it looks as though that cheque is in the post.

But Greece needs more to get it past this crisis, perhaps as much as $60bn according to some estimates.

Greece is asking its fellow eurozone members for the rest at talks taking place between the IMF, the European Central Bank, the European Commission and the Greeks in Athens.

Most of them seem supportive so these talks should be concluded in "a matter of days", according to Amadeu Altafaj Tardio, spokesman for the European Economic and Monetary Affairs Commission.

However angry the eurozone members are with Greece for fudging its figures for years, their overwhelming interest is in preserving the 11-year-old single currency project that was achieved at such cost and which underpins their economies.

Parliamentary approval

Underpinning those talks is agreement made by all 15 member states, who said yes to the plan at the European Council level.

Most, though, also need their own parliaments to approve that promise.

Italy, in theory, could provide funds and ask for parliamentary approval later.

The Netherlands is also more ready than most. It has agreed in principle to give its backing.

But the two most powerful countries in the euro zone, France and Germany, have both warned Greece it cannot take them for granted, and the EU pillar of support may not be as firm as the IMF one.

Greek Finance Minister George Papaconstantinou in Washington
Greece's George Papaconstantinou is calm in the face of the storm

France, sounding tough, has essentially told the Greeks they must stick to their austerity programme, and that it will not allow any more fudges and backsliding.

Greece provided reassurance on Monday by saying it would take further steps to prove its prudence. It promised to make fresh deficit cuts following the emergency loan talks.

Doing so could spark more internal trouble for Greece, which has seen a wave of demonstrations by its people resistant to the new austerity.

Far more troublesome is Germany.

It has a fragile coalition government that may be weakened further by a crucial, regional election in under two weeks' time.

And one of the popular voting topics is the aid package for Greece. Opinion polls consistently show the majority of Germans are opposed to it.


This is not a rescue operation (for Greece)... it's a rescue for all of us

Italian foreign minister, Franco Frattini

German Chancellor Angela Merkel, for one, said Greece must be supported. Asked whether it was conceivable that Greece could leave the euro, she replied: "No. I say very clearly: no."

But some politicians are making statements designed to please the voters. Some of these are hard-line indeed, even going as far as to suggest letting Greece leave the single currency.

One senior Christian Social Union politician, Hans-Peter Friedrich, says Greece not only had a liquidity problem, but also a fundamental growth and structural problem.

For this reason, he says, the country should "seriously consider withdrawing from the euro zone".

His is not a lone voice. Some German politicians question whether the proposed aid package is even legal.

Euro's walls

Such tough talk has made other eurozone concerned. Italy's Mr Frattini insists shared interests are at stake.

"There can be no doubt," he says. "If the house is in difficulty we have to save the walls because we are all in this house.

"This is not a rescue operation [for Greece], this is a consolidation of Europe's walls, the walls of the euro. It's a rescue for all of us."

At the centre of the storm, Mr Papaconstantinou seems calm.

He appears certain of German support: "They are completely on board on the need for a framework of conditionality and fully supportive of a decision that Germany has co-signed at the level of heads of state and government and at the euro group level," he says.

He is supported by France, who's economy minister, Christine Lagarde, says she thinks Germany would move to help its neighbour.

"No, they are not refusing to help Greece, as far as I know," she says.

"I am confident about the negotiations because everyone will benefit from them."

Dangerous time

Meanwhile the markets continue to try to second-guess the outcome of the loan discussions, with many investors betting on failure of the loan plan.

That is shown by Greek interest rates in the market at above 9% - even though a loan deal would leave the Greeks paying just 5%.

It is shown by a weak euro, in part reflecting the outside chance that the single currency could break apart.

And other countries are suffering too.

Those with high debts - notably Portugal, Ireland, Italy and Spain - are finding the market is applying higher borrowing costs to them.

The vast majority of observers want this mess cleared up swiftly - certainly before 19 May when Greece is due to repay an 8.5bn euro loan ($11.3bn, £7.3bn).



Print Sponsor


SEE ALSO
Investors still nervous on Greece
26 Apr 10 |  Business
Greek talks with IMF 'going well'
25 Apr 10 |  Business
Fateful day for eurozone
24 Apr 10 |  separator
Q&A: Greece's economic woes
02 May 10 |  Business

RELATED INTERNET LINKS
The BBC is not responsible for the content of external internet sites


FEATURES, VIEWS, ANALYSIS
Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit

BBC navigation

BBC © 2013 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific