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Germans prepare for possibility of Greek aid
March 2, 2010 / 4:55 PM / 8 years ago

Germans prepare for possibility of Greek aid

By Madeline Chambers - Analysis

BERLIN (Reuters) - A harsh reality seems to be dawning on Germans -- that helping debt-ridden Greece, as part of a euro zone effort, may be inevitable.

Ever-cautious Chancellor Angela Merkel has made comments which could be seen as preparing the ground for some sort of aid and in a clear shift, some influential newspapers have started running editorials arguing Germany may have to act.

The question of how to deal with Greece’s debt, which has triggered talk about the possible breakup of the euro zone, is set to come to a head on Friday at talks in Berlin between Merkel and Greek Prime Minister George Papandreou.

“The pressure is growing -- the chancellor knows that. She is still waiting for the right time to justify the billions (in aid) for Greece,” wrote the center-right Die Welt.

“But by then the situation in the financial markets could have spun out of control... The billion euro question is now therefore ‘when will Merkel move?'” it added.

Granting financial aid would be a highly unpopular move in Germany, Europe’s biggest economy, itself only just creeping out of its deepest recession since World War Two.

Polls show most Germans are against taxpayers bailing out Greece and the debate has at times degenerated into a spat between Berlin and Athens about war claims dating back to the Nazi occupation.

However, there are discrete talks among euro zone governments on possible mechanisms to support Greece if necessary, EU sources say. Germany would have to be involved.

“We think some sort of financial help will be needed at some point,” said Giada Giani, an European economist at Citigroup, adding euro zone states seemed to be working on a coordinated deal in which France and Germany would play the biggest roles.

“They (politicians) in Germany and elsewhere are trying to prepare public opinion and they will try to find a form of financial help that is not a direct loan.. they are looking for the most politically acceptable solution,” she added.

CHANGE OF TONE

Merkel, under pressure from voters and her Free Democrat (FDP) coalition partners, has for weeks insisted that Athens must deliver austerity measures to reassure markets.

She is particularly keen to keep voters on board in the runup to a May 9 election in Germany’s most populous state of North Rhine-Westphalia which will be key to her center-right coalition keeping control of parliament’s Bundesrat upper house.

However, in the last few days, she has repeatedly warned of the dangers facing the euro. The more she stresses the fragility of the single currency, the more Germans may be willing to swallow action.

“She is giving ambiguous signals but for the domestic audience, Merkel will have to dress it up -- maybe in the form of an international package. Otherwise it will be a major burden for the regional election,” said Peter Loesche, emeritus politics professor at Goettingen University.

“If it is about the collapse of the international financial system or the euro, Germans might accept she must do something.”

Economists say one option is a form of indirect aid.

“It could be the involvement of (state-owned development bank) KfW, which is still in the end a form of public guarantee, but it is not the same as the federal government going out and lending to Greece,” said Giani.

A German member of the European Parliament, Jorgo Chatzimarkakis, said on Saturday that Germany, France and the Netherlands planned to buy Greek bonds, using state-run banks such as Germany’s KfW and France’s Caisse des Depots.

Merkel still has a way to go if she really does want to win over opponents before offering concrete help to Athens.

She faces opposition from heavyweights, such as Otmar Issing, a former European Central Bank economist who has repeatedly voiced scepticism about a bailout.

And she would have to persuade FDP chief and Foreign Minister Guido Westerwelle, who is railing against giving aid in an effort to reverse a slump in his popularity. Support for the FDP has almost halved since September’s federal election.

If aid is to come, Merkel’s job may be made easier by a more understanding media. One of the strongest arguments for aid was put by the center-left Berliner Zeitung.

“What would happen if the European currency Union actually fell apart? German banks -- among the country’s biggest creditors -- would be dragged into the mess,” it wrote.

“But the most important reason to keep the euro is political. If the currency union were to collapse, conflict, uncertainty and economic losses would loom and this could pit the peoples of Europe against each other.”

“Germany, more than any other nation, wants to avoid reviving past resentments. No country is more dependent on friendship, political cooperation and economic involvement. We are the ones that need the European Union the most,” it wrote.

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