BRUSSELS — In a tense game of
brinksmanship, the European Union is moving
toward the first bailout in the history of its common currency, which is
expected to involve loan guarantees from the German and French governments to
encourage their banks to buy Greek debt.
Even as the negotiations continue,
the bloc is insisting that Athens impose further, painful austerity measures,
in part to overcome political opposition in Germany to providing aid to the
During a brief visit, due to start
Monday, Olli Rehn, the European commissioner for economic and monetary affairs,
will press for more spending cuts and tax increases in Greece as a precursor to an
emerging package of financial support.
With no structure in place for
dealing with a threatened default within the 16-nation euro zone, officials are
making up the rules as they go along. That means that politics — as much as
economics — is determining the outcome of the worst crisis in the decade-long
lifespan of the euro, creating a kind of phony
war in which battles are being fought by leaks and behind-the-scenes briefings.
European officials say that the
purchase of Greek bonds by state-owned lenders like Germany’s KfW — backed by
German government guarantees — is likely to be involved in any solution and has
been an option under discussion for three weeks.
Other alternatives, including ones
that involve more countries in the euro zone, are also being discussed.
France’s state-owned bank Caisse des Dépôts et Consignations, may be involved,
one Greek newspaper reported Saturday, while France’s Finance Minister. Christine
Lagarde, told Europe 1 radio on Sunday that there are “a certain number of
proposals in the euro zone, involving either private partners or public
partners or both.”
But Germany’s Chancellor, Angela Merkel, is not ready to
sign off on a rescue, officials said, before Greece has pushed through further
One European official, speaking on
condition of anonymity because of the sensitivity of the subject, said that
Greek officials appeared to be briefing journalists on the prospect for an big
rescue package in the hope of pushing the European Union into a quick solution,
or of convincing the markets that help is at hand.
“The Germans will not put a euro on
the table until there is a credible austerity package,” the official said.
Simon Tilford, chief economist at
the Center for European Reform, said that France and Germany recognize that
some form of bailout is inevitable, but that, to enable a bailout to be sold to
a skeptical German public, the Greeks first “have to be seen to be suffering.”
Much of the negotiating focuses on
the Greek prime minister George Papandreou. On Friday, Mr. Papandreou met with Josef Ackermann, the chairman
of Deutsche Bank, in Athens;
on March 5 he plans to visit Mrs. Merkel in Berlin. He also is scheduled to
meet President Obama in Washington on