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Pressure mounts over IMF role in Greek crisis
by Roddy Thomson | March 20, 2010

There have been widespread protests against the proposed Greek austerity measures There have been widespread protests against the proposed Greek austerity measures
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Europe split over IMF intervention for debt-ridden Greece on Friday, upping pressure on national leaders to resolve crisis plans just days from a crunch EU summit.

Germany, changing tack, said it was open to the possibility of the International Monetary Fund helping Greece while the Netherlands, Finland and Italy -- to varying degrees -- also declared themselves open to IMF involvement.

"The German government does not rule out aid from the IMF if Greece requests it," spokesman Ulrich Wilhelm said after reports that Berlin was concerned European aid for Greece could break German and EU law.

Investors reacted negatively, with Greek government bond yields -- the interest rate that Athens must pay in order to raise money on debt markets -- rising sharply. The euro weakened against the dollar, sliding to 1.3531 dollars in London trade compared to 1.3603 in New York late on Thursday.

Non-euro peers Britain and Sweden firmly back an approach to the International Monetary Fund if Athens concludes that it cannot keep up with debt repayments.

The shift is not universal. There has been no change in the French position, which holds that the Greek troubles are an internal eurozone matter.

The IMF has never rescued a eurozone member, and a Greek bailout would be seen by some as a humiliation for the 16-nation bloc.

EU finance ministers agreed on the broad lines of such a European assistance plan when they met in the Belgian capital on Monday.

The EU's budgetary overlord, Olli Rehn, said leaders had to come to a "specific political conclusion" and clarify the way forward "next week," having compared notes with IMF chief Dominique Strauss-Kahn.

But in a pointed sign, a diplomatic source warned it was unlikely that EU president Herman Van Rompuy would find sufficient support to place the issue on the formal agenda for the March 25 and 26 EU summit.

Greek Prime Minister George Papandreou has urged the EU to help his country borrow more cheaply when they meet next week.

EU Commission chief Jose Manuel Barroso on Friday urged European leaders to approve a coordinated loan facility for debt-laden Greece "as soon as possible," in order to restore confidence.

"We cannot prolong any further the current situation," Barroso warned days ahead of a European summit.

"I urge the EU's leaders to agree on this instrument as soon as possible," he stressed, amid fears that the pressure on Greece could end up damaging the eurozone.

The help Barroso had in mind would be "a system of coordinated bilateral loans," and as such would be compatible with EU law which bans bailout loans to any of the eurozone countries.

Barroso did not go into any great detail about the sums involved but an EU official said Greece would require "around 22 billion euros (30 billion dollars)," to help it service its massive debt burden.

According to another EU official, several partially or fully state-owned banks and financial institutions across Europe are considered as potential candidates to offer loans, including France's Caisse des Depots, the Franco-Belgian bank Dexia and, if Berlin gives the green light, regional German banks.

The aid plan would allow Greece to borrow at "lower interest rates than it is currently paying" on the markets, the source said.

The yield on Greek 10-year bonds rose Friday to 6.333 percent from 6.265 percent on Thursday, more than double the rate for German bonds.

"Time is running out" for definitive action, said Ulrich Leuchtmann, an analyst at Germany's Commerzbank, as Greece needs to raise some 20 billion euros (27 billion dollars) from international debt markets over the next two months.

Under pressure from the EU, Athens has announced draconian action to fix its public finances -- triggering strikes and violent protests on the streets of Athens.

On Friday, Papandreou said his country had come "one step from being unable to borrow" on the world markets.

"We are in a state of war, fighting against interests both within and outside our borders who want to take advantage of the difficult situation and the weakness in which Greece finds itself today," he said.

AFP