German MPs claim Greece needs €120bn

German MPs claim Greece needs €120bn
By Quentin Peel and Gerrit Wiesmann in Berlin, Kerin Hope in Athens, Mure Dickie in Tokyo, David Oakley in London
Copyright The Financial Times Limited 2010
Published: April 28 2010 10:26 | Last updated: April 28 2010 16:40
http://www.ft.com/cms/s/0/a7a9c604-5297-11df-a192-00144feab49a.html


Greece will need financial assistance amounting to between €100-120bn over the next three years, German parliamentarians claimed on Wednesday after meeting Dominique Strauss-Kahn, managing director of the International Monetary Fund, and Jean-Claude Trichet, president of the European Central Bank.

They said that the €45bn currently proposed as a rescue package of loans from the IMF and other members of the eurozone was only enough for the first year of support.

Mr Strauss-Kahn refused to confirm the higher figure on Wednesday, saying that all details of the negotiations would only be announced once the entire Greek standby programme had been finalised by IMF, ECB and European Commission officials meeting the Greek government in Athens.

Officials cautioned against using any precise figures for the longer-term financial requirement, and another parliamentarian at the meeting said they were “hypothetical”.

The first report of the discussion came from Jürgen Trittin, parliamentary leader of the Green party, and Thomas Opperman, chief whip of the Social Democratic party, after their three-hour meeting at the German finance ministry in Berlin.

Mr Trittin said that two thirds of the full Greek financial requirement over three years would have to be met by the eurozone member states, with a contribution from Germany of at least €16bn.

He told reporters at the ministry that it was necessary to approve financial assistance in “absolute transparency” and with the full involvement of the German parliament. If the full €120bn were available for Greece, it would mean that country would not have to rely on borrowing from the international capital markets for three years, he added.

Mr Strauss-Kahn repeatedly refused to be drawn on details of the package, saying that the negotiations were difficult, and that any recovery programme would certainly be painful.

“I don’t want to hide behind a rosy picture,” he said. What was at stake was not only the economic situation in Greece, but confidence in the eurozone as a whole.

Both he and Mr Trichet stressed the overriding urgency of agreeing on a programme and implementing it. “We need Greece to come back on track as quickly as possible,” he said. “Every day which is lost [the] situation gets worse and worse.”

Mr Trichet said that his “working assumption” was that the negotiations in Athens would be finished “within two days, or during the weekend”. He expected “a very good end” to the talks.

Wolfgang Schäuble, German finance minister, also expressed hope that a Greek programme could be finalised by the weekend, allowing the German government to agree on a law enabling KfW, the state-owned development bank, to lend Greece its share of the money. He said that legislation could be approved by the Bundestag by Friday next week, leaving time for the Bundesrat – the upper house – to approve it by the end of the week.

However any programme will have to get approval from the boards of the IMF and ECB, and the European Commission, the finance ministers of the 16 eurozone countries, and finally by the heads of state and government of those countries.

In spite of the cumbersome process, officials believe it may be possible to have the €45bn programme in place by May 10 – well before Greece has to repay the next tranche of its government borrowing on May 19.

Earlier on Wednesday Herman Van Rompuy, president of the European Council, insisted that there was “no question” of a restructuring of Greece’s debt as the country’s capital markets regulator set a two-month ban on short selling of shares on the Athens stock exchange following heavy selling on Tuesday.

The Capital Markets Commission said in a statement that the move reflected “the extraordinary conditions in the Greek market”. The ban would stay in effect until June 28.

Yields on two year Greek bonds rose to above 16 per cent on Wednesday amid growing nervousness about the state of the country’s deteriorating public finances.

Greek 10-year yields also rose more than a percentage point to 11.034 per cent although they narrowed later on Wednesday.

The problems for Greece have spilled over into other peripheral economies in the eurozone such as Portugal, Spain and Ireland, with bond yields of those countries spiralling on Wednesday.

Mr Van Rompuy said eurozone heads of state and government would gather next month to decide how to activate financing of a joint programme in support of the market-battered nation.

European Commission officials had said on Tuesday that a debt restructuring was not under consideration in talks between Greece, the EU and the IMF, while Mr Trichet said a Greek default was "out of the question".

The IMF is currently looking at raising its share of Greece's financial rescue package by €10bn.

In Britain on Wednesday chancellor Alistair Darling called for eurozone countries to “urgently” agree a bail-out for Greece or risk a further decline in stock market confidence. Mr Darling said it was “absolutely essential” that Greece’s problems were sorted out “quickly, effectively and decisively”, following a torrid 24 hours for world markets.

After the market closed on Tuesday, Standard & Poor’s, the ratings agency, cut Greece’s rating to junk status.

It said the downgrade to double B plus with a negative outlook resulted from “an updated assessment” of Greece’s political economic and budgetary challenges.

S&P also downgraded Greece’s four leading banks to junk, saying banks were “directly exposed to the sovereign’s deteriorating quality through their large holding of Greek government debt”.