Skip to main content

France's President Nicolas Sarkozy (R) and Greece's Prime Minister George Papandreou (L) attends a news conference at the Elysee palace in Paris March 7, 2010.

Greek Prime Minister George Papandreou is adding a dose of brinkmanship to his international diplomatic offensive.

His whirlwind tour of Luxembourg, Berlin, Paris and Washington is designed to secure enough financial support to allow Greece to raise some €22-billion ($30.8-billion) to pay off maturing debt in April and May. If the support doesn't come through, Greece risks, at best, having to pay punitive interest rates to get its next series of bonds out.

At worst, it risks defaulting on its debt, a scenario that would destroy market confidence in Portugal, Spain and other weak countries that share the euro, and accelerate the currency's downward spiral. The euro has dropped about 8 per cent against the dollar in three months as Greece's budget deficit soars and investors question the ability of the euro, used in 16 of the European Union's 27 countries, to survive.

Story continues below advertisement


Mr. Papandreou is seeking a reward for the €4.8-billion austerity package his government passed last week, one that won the praise of other euro zone governments and allowed Greece to sell €5-billion of bonds.

But the wealthy euro zone countries have been reluctant to commit to specific financial measures to help Greece. If Mr. Papandreou's euro zone tour leaves him empty-handed, he has made it clear that he will knock on the door of the International Monetary Fund (IMF).

But the euro zone heavyweights - Germany, France and the European Central Bank - have made it clear they don't want Greece to seek IMF help. In London, UniCredit economist Marco Annunziata said, "involving the IMF would be embarrassing because it would show that the euro zone is not able to guarantee that its members will follow sustainable policies."

Mr. Papandreou was in Berlin on Saturday and met with French President Nicolas Sarkozy yesterday [Sunday]in Paris. He leaves for Washington tomorrow on Tuesday to meet U.S. President Barack Obama. It is not known whether he will meet with the IMF, but economists said they would not be surprised if he sees IMF managing director Dominique Strauss-Kahn.

Playing the euro zone against the IMF seems to have had some effect already. In Paris, Mr. Sarkozy promised that the euro zone countries would help Greece, though he stopped well short of revealing a plan. "The main actors on the European stage [have]decided to do whatever is needed to make sure Greece is not isolated," he said. "Christine Lagarde [the French Finance Minister] in tandem with her colleagues in the euro zone and in Europe, [are]working on a certain number of precise measures if Greece needs them."

In spite of Mr. Sarkozy's soothing words, Germany has given no sign that it is willing to pledge financial support to a Greek rescue package. Instead, it is floating the idea of creating a European version of the IMF.

Story continues below advertisement

In an interview published yesterday [Sunday]in the Welt Am Sonntag newspaper, German Finance Minister Wolfgang Schaeuble said, "For the internal stability of the euro zone, we need an institution that has the power and the know-how of the IMF. We shouldn't rule anything out, including the creation of a European Monetary Fund."

Some leading euro zone politicians and many economists think a deal with the IMF would be the best route for Greece. One supporter of the idea is Italian Finance Minister Giulio Tremonti. "The IMF should act as a bank," in any rescue, he told reporters in Venice on Saturday. "We finance the IMF so it can use the funds around the world."

Mr. Annunziata, said the euro zone "can offer no rationale for their opposition [to the IMF]aside from the idea that economic policy problems should be dealt with in-house."

Even though Athens was able to sell bonds last week, it had to pay a hefty price to drum up demand. The interest rate on the bonds was 6.3 per cent, almost double the rate paid by the benchmark German bonds, known as bunds.

As long as Germany resists sponsoring a rescue package, yields on Greek debt will remain at painful levels, raising financing costs for the country and putting more pressure on public spending. As spending cutbacks are rolled out, Greece has been rocked by a series of protests and strikes.

Report an error Licensing Options
About the Author
European Columnist

Eric Reguly is the European columnist for The Globe and Mail and is based in Rome. Since 2007, when he moved to Europe, he has primarily covered economic and financial stories, ranging from the euro zone crisis and the bank bailouts to the rise and fall of Russia's oligarchs and the merger of Fiat and Chrysler. More

Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.