The Corner

The Furies

The sense that the Greek rescue plan just isn’t credible continues to take a toll, with a big sell-off in European markets today after S&P downgraded both Portuguese and Greek debt; Greece’s debt went down to junk. At one point, according to Bloomberg News, the yield on two-year Greek paper rose to over 17 percent.

One of the reasons (other than the brutal math) that the markets remain so skeptical about the viability of any rescue is the position of Germany (in principle, a major contributor to any rescue). In that context, this piece in the London Times is well worth reading. Here are the key points:

The mood is turning in Germany, however, against a European monetary union that is heavily subsidised by German taxpayers. One weekend survey showed that 86 per cent of Germans were against, and barely 14 per cent in favour of a Greek bailout.

Anger is being stoked up by television talk shows and radio call-ins. Greece — or rather the prospect of Germany forced to pay to prop up the euro — is thus fast becoming an election issue. Voters go to the polls in Germany’s most populous state, North Rhine Westphalia, on May 9. It is currently run by a Christian Democrat/Free Democrat coalition — the same constellation that runs the federal Government in Berlin. If it buckles, then Chancellor Merkel’s Christian Democrat/Free Democrat majority in the upper house of parliament, the Bundesrat, will disappear. The wind will be taken out of the sails of the Chancellor before she has even begun her second term in earnest.

Telling Germans there was no cash to cut taxes while also demanding that they pay billions of euros to the profligate Greeks was, said Andreas Pinkwart, the North Rhine Westphalian Free Democrat leader, like “slappinmg citizens in the face.” Leading Social Democrats meanwhile have accused the Chancellor of covering up the scale of the Greek crisis and the bill for the Germans.

Hans-Peter Friedrich, the senior representative of the conservative Christian Social Union, has declared that Greece should “seriously consider withdrawing from the eurozone.” Greece, he said, “doesn’t just have a liquidity problem, but also a fundamental growth and structural problem.”

To head off a cross-party revolt against helping Greece, Jean-Claude Trichet, the head of the European Central bank, and Dominique Strauss-Kahn, the head of the International Monetary Fund, have both been invited to address German parliamentarians on Wednesday.

They will be quizzed as to the credibility of the Greek reform plans and its liquidity not only this year but also next. German sources say the International Monetary Fund can only chip in this year with between €10 billion and €15 billion, leaving the eurozone to pick up the remaining €30 billion. Germany is earmarked to take 28 per cent of that sum

But German government calculations suggest that Greece might need to refinance some €150 billion over the next three years, presenting the eurozone with an additional bill of €60 billion. And Germany’s contribution at €16.8 billion. That is what German politicians fear; no one agreeing publicly to pick up such a hefty bill will ever win an election. Hence the growing feeling in the German parliament — with some support even in the European Parliament — that Greece be persuaded to leave the eurozone and return to the drachma — as a “last resort” in the words of Chancellor Merkel. That would amount to €8.4 billion.

What was it someone once said about the difficulty of unscrambling eggs?

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