Berlin, Athens in sovereignty row over Greek rescue

Lucas Papademos.jpg

A German proposal to put an EU commissioner in charge of scrutinising the Greek budget caused a diplomatic standoff between Berlin and Athens over the weekend as negotiations over a second Greek bailout plan grew tougher. EURACTIV Greece reports.

Berlin wants a new eurozone 'budget commissioner' to have the power of vetoing budget decisions taken by the Greek government when those are not in line with targets set by the country's international lenders, the Financial Times reported on 28 January.

The German plan was made available Friday afternoon to eurozone officials, the newspaper reported.

The tougher scrutiny of Greece is presented as a prerequisite for the €130-billion aid package, agreed in principle in October 2011 but whose details are still being hammered out between Athens and the country's private lenders.

Under the plan, Athens would only be allowed to carry out normal state spending after fully servicing its debt, the paper reported.

Greek Deputy Prime Minister Evangelos Venizelos reacted furiously to the report, saying that Greece would not relinquish its "identity" and "dignity".

"Anyone who puts a nation before the dilemma of 'economic assistance or national dignity' ignores some key historical lessons," Venizelos, who is also finance minister, said in a statement. "I am certain that the political leadership of all European nations – particularly bigger nations that bear increased responsibility for the course of Europe – are aware of how friends and partners, who have joined their historical destinies, raise questions."

Government sources say Prime Minister Lucas Papademos, who is attending today's extraordinary EU summit in Brussels, will make it clear that the German plans are unacceptable.

Greek ministers who asked not to be named accused German Chancellor Angela Merkel of "inventing ways" to force Athens to break the negotiations for the new bailout package.

Political observers warned of serious political and social unrest in Greece over the risk of the country's losing its sovereignty.

"More and more the impression is given that the German government – in an effort to cover up its own responsibilities for a possible failure of the rescue of Greece – is doing everything it can to push Athens to take the initiative not to sign the agreement," political insiders in Athens told EURACTIV Greece.

A government source in Berlin quoted by Reuters said Germany's proposal was aimed not just at Greece but also at other struggling eurozone members that receive aid and are unable to make good on their obligations.

For its part, the European Commission said it wanted the Greek government to maintain autonomy.

Under the Greek rescue plan, private creditors are being asked to voluntary accept a nominal 50% cut in the value of their Greek bond holdings in return for a mix of cash and new bonds.

Private-sector involvement is a key part of a new €130-billion bailout package that needs to be in place by March to ensure Greece does not default on its massive debt.

But talks are not progressing as fast as hoped. The issue is pressing, since a new bailout for Greece from the International Monetary Fund and the EU is hanging in the balance pending the success of private sector involvement.

More generally the failure to agree on the private sector's role comes at a critical moment in the euro crisis, adding to market jitters.

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