Greek, German ministers kick off euro diplomacy

August 20, 2012

BERLIN (AP) — Europe's leaders are gearing up for a high-stakes week of financial diplomacy that could determine Greece's future — and the stability of the 17 countries that use the euro.

The first round of shuttle diplomacy began Monday with Germany's foreign minister, Guido Westerwelle, hosting his Greek counterpart, Dimitris Avramopoulos, ahead of a meeting in Berlin on Friday between their countries' leaders, Chancellor Angela Merkel and new Prime Minister Antonis Samaras.

French President Francois Hollande visits Berlin on Thursday for discussions with Merkel and then will meet Samaras in Paris on Saturday. Jean-Claude Juncker, the Luxembourg prime minister who chairs the eurozone finance ministers' meetings, is due in Athens Wednesday.

Meanwhile, Greece's finance officials were working Monday to secure €11.5 billion ($14.19 billion) in spending cuts necessary for it to continue receiving the international funding that is protecting it from bankruptcy.

The eurozone is awaiting a report next month on Greece's progress in implementing reforms and austerity measures demanded in exchange for two massive bailout packages. The report is being compiled by the so-called "troika" — representatives of the European Union, European Central Bank and International Monetary Fund.

Greece has been dependent on two multi-billion international bailouts from other eurozone countries and the International Monetary Fund since its debt crisis broke in 2010. But despite taking a series of harsh austerity measures that saw salaries and pensions slashed and repeated rounds of tax hikes, the results have not been what European and Greek officials hoped for.

The country has fallen behind on implementing the reforms and austerity measures, fueling impatience in Germany and other eurozone countries and speculation that Greece will have to leave the euro — a move that would further destabilize the currency bloc and threaten the economies of countries such as the U.S. and China.

Samaras' fragile three-party coalition government, formed after two elections in May and June, has said it hopes to renegotiate parts of the unpopular bailout conditions, mainly seeking an extension in the two-year austerity deadline. But German officials and lawmakers are making clear they have no appetite for granting Greece more time to comply with the terms of its rescue packages or other concessions.

Finance Minister Wolfgang Schaeuble said on Saturday: "I have always said that we can help the Greeks, but we cannot responsibly throw money into a bottomless pit." The parliamentary leader of Merkel's conservative bloc, Volker Kauder, has insisted that there is no room for giving Greece more time and says he sees little chance of Germany's governing coalition supporting a third rescue package.

Germany's vice chancellor, Economy Minister Philipp Roesler, said recently the idea of Greece leaving the euro has "lost its horror."

Top European Central Bank official Joerg Asmussen said that he wants Greece to remain in the eurozone and that "securing that is in the hands of Greece."

"A withdrawal by Greece would be manageable," Asmussen, a German, was quoted as saying in an interview published Monday by the Berliner Zeitung and Frankfurter Rundschau newspapers. But "a withdrawal would not be as orderly as some imagine. It would be connected with lower growth and higher unemployment, and very expensive. In Greece, in the whole of Europe and in Germany too."

"I am always astonished about the flippancy with which some speculate about a withdrawal and the contempt with which inhabitants of the common European house are spoken about," he added.

Here is a round-up of what else is happening around Europe:


Greece's Finance Minister Yannis Stournaras met with his deputy ministers and Labour Minister Yannis Vroutsis to hammer out measures to cut government spending by €11.5 billion ($14.19 billion) so it can continue receiving the international funding.

The officials aim to finalize the measures for 2013 and 2014 in time for a visit to Athens on Wednesday by Juncker.

The measures are seen as key for the "troika" to agree to give Greece the next bailout installment. The country's debt stands at more than €300 billion, and the economy is struggling through a fifth year of recession with unemployment at above 23 percent.

Still, underlining the uncertainty about Greece's future, the German weekly Der Spiegel reported this weekend that an initial assessment by the troika inspectors suggests Greece may need to cover a financing shortfall of up to €14 billion over the next two years, rather than €11.5 billion. It did not cite sources.


Germany's central bank, the Bundesbank, has again stressed its skepticism toward proposed purchases government bonds by the European Central Bank.

ECB President Mario Draghi said on Aug. 2 that the bank might make such purchases to lower the high borrowing costs faced by some governments, if those countries first applied for help from the eurozone's bailout fun. Draghi noted that the Bundesbank was the sole dissenter to the plan.

High borrowing costs on government bonds are threatening to ruin the finances of Spain and Italy, which are struggling to control their debts while their economies are in recession. If the borrowing costs stick at a high level — many market-watchers put that at 7 percent — a country would find it increasingly difficult to maintain its bond repayments and would have to turn to the other eurozone countries and the IMF for assistance. Because Italy's and Spain's economies are so large — the third and fourth largest in the eurozone — many analysts are worried that a request for a bailout would stretch the eurozone's finances to breaking point and plunge the region further into recession.

The German national central bank said in its monthly report Monday that it continues to "critically assess" such purchases and that they would carry "substantial risks."

The Bundesbank has one seat on the ECB's 23-member governing council, but has added clout because it has considerable public support among economists, legislators and the general public in Germany.