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HL:EU piles pressure on Greek premier, opposition leader to find unity in crisis
By Gabriele Steinhauser,Raf Casert
THE ASSOCIATED PRESS
BRUSSELS, Belgium — European Union leaders stepped forcefully into Greece’s national politics on Thursday, urging its prime minister and the opposition leader to work together to find a way out of the country’s financial meltdown and protect the euro.
Several EU heads of government directly targeted opposition leader Antonis Samaras to support unpopular austerity measures that Greece’s international lenders have set as a precondition for more aid.
Without the next C12 billion ($17 billion) installment of its existing C110 billion bailout, Greece will default on its massive debt my mid-July. The country is also negotiating a second rescue package as it remains stuck in recession and locked out of international debt markets.
“When it comes to Greece, we call on the opposition to fulfil its historical responsibility,” German Chancellor Angela Merkel said. Samaras’ conservative party had been in power for years before Socialist Prime Minister George Papandreou took over in late 2009 and discovered that Greece’s deficits were much bigger than previously disclosed.
So far, however, Samaras has said his party would block the new spending cuts, tax increases and economic reforms designed to shave C28 billion off the Greek budget in coming years.
“The current policy mix, implemented by the Socialist government, calls for more taxes in an economy in unprecedented recession,” he said at a pre-summit meetings in Brussels of conservative leaders. “We need corrected policy measures to ensure that the economy recovers and that we can pay back our debt.”
The plea to a national opposition leader, rare in EU politics, underscored the emergency Greece and the 16 other nations using the euro currency face.
“I’ve never seen that before. I think it’s quite extraordinary,” Paul de Grauwe, a professor of economics at the University of Leuven, Belgium, said of their appeal. “In a way, it also reflects their desperation.”
About a year and a half into the Greek crisis, European leaders have lost much of their patience with Greece, which lags behind in cutting its deficits and implementing promised economic reforms and privatizations. They are concerned that the Greek government, faced with violent anti-austerity protests in recent weeks, lacks the power to push through the new measures without cross-party support.
“It is very important that no Greek political leader tells the Greek people that they have a shortcut,” said Swedish Prime Minister Fredrik Reinfeldt.
Earlier this week, eurozone governments delayed a final decision on new aid for Greece until July 3, when they will know whether its parliament has accepted the new measures.
On Thursday, EU leaders also reinforced their message of fiscal austerity to Prime Minister Papandreou, who held talks with EU officials as well as Merkel, French President Nicolas Sarkozy and European Central Bank President Jean-Claude Trichet ahead of the summit, which ends Friday.
“We should always be prepared, in democracies, for the will of our deputies and parliamentary procedures,” Papandreou told reporters after the small-circle meeting, reflecting how narrow a majority he commands in parliament. “But ... I believe that with a strong commitment from the European Union that there would be also a strong commitment from Greece.”
While Samaras’ plea for changes to the austerity measures and the overall bailout program did not find much sympathy among European leaders, many economists have said that slashing spending in the middle of a deep recession will only make things worse. They argue that a substantial cut to Greece’s debt — approaching some 160 per cent of economic output — will get the country’s economy in a position for growth again.
“The kind of austerity program that has been pushed on Greece will not work and cannot work,” said de Grauwe. “It’s certainly unrealistic to continue to turn the screws.”
A last-ditch attempt by European Commission President Jose Manuel Barroso to sweeten the austerity measures for Greece’s voters and parliament also was facing resistance at the summit.
Barroso has urged leaders to help Greece access billions in EU development funds to create jobs and make its businesses more competitive. The funds are designed to help underdeveloped regions catch up with richer parts of the 27-nation bloc. About C15 billion ($22 billion) is still available for Greece until 2013, but the country is struggling to prove it can use the funds well and come up with matching financing.
However, countries such as Germany are reluctant to make any concessions to Greece before the parliament vote, and poorer EU countries that have similar problems accessing the development funds were also likely to frown on easing the rules for one country only.
At the summit, leaders will also take another look at EU finance ministers’ decision to ask banks and other private creditors to share the burden of a second massive bailout for Greece, on top of the C110 billion ($158 billion) the country was granted a year ago.
Talks with banks to persuade them to buy Greek bonds at lower interest rates as their old ones mature already have started. But national finance ministries have to be careful in their discussions to avoid any element of coercion, which could lead rating agencies to consider Greek to be in default on its debt.
The ECB has warned that such a negative rating could spark panic on financial markets, hurt Greek and European banks, and endanger other EU nations struggling with heavy debt.
The divisions among EU countries are reaching beyond the problems of Greece.
Another key item planned for the summit — the formal appointment of Mario Draghi as the new president of the European Central Bank — may be put off as fellow Italian executive board member Lorenzo Bini Smaghi has refused to leave his post.
The French, who with the departure of current ECB President Jean-Claude Trichet on Oct. 31 would not have a representative on the board, will only support Draghi if a Frenchman or a woman takes over Smaghi’s spot.
European finance ministers, the European Parliament and the board of the ECB have already backed Draghi, but without the formal approval of the leaders his appointment will not be valid.