German banks agree to Greek financing

By ASSOCIATED PRESS
May 7, 2010 16:29

Meanwhile, Portugal agrees to lend just over €2 billion, even though Eurozone's poorest member is also under pressure from markets.

4 minute read.



German Finance Minister Wolfgang Schaeuble

Wolfgang Schaeuble . (photo credit: ASSOCIATED PRESS)

The German parliament approved Berlin's share of the rescue package for debt-laden Greece after a boisterous debate Friday in which the finance minister told lawmakers they had no alternative to the unpopular measure.

The lower house of parliament voted 390-72, with 139 abstentions, to authorize granting as much as €22.4 billion ($28.6 billion) in credit over three years. That is part of a wider €110 billion package backed by eurozone members and the International Monetary Fund.

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Chancellor Angela Merkel's center-right governing coalition was joined by one of the three opposition parties in approving the aid. The upper house of parliament — representing Germany's 16 states — later added its approval.

Germans dislike the idea of rescuing another country from its financial irresponsibility, but Merkel welcomed what she called " a very important decision that makes clear that we are protecting the currency in the interests of our citizens."

Merkel was traveling later in the day to Brussels for a European Union summit. She said leaders would have a "fundamental discussion that must make clear that the primacy of politics in securing the stability of the euro has absolute priority for us."

Finance Minister Wolfgang Schaeuble told lawmakers before they voted that "we have to make this decision and we have no better alternative."

"Any other alternative would be much more expensive for the Germans, would be much more dangerous, would carry much bigger risks," he added.

Schaeuble said central bankers and the IMF agree "it would be disastrous to risk ... a member of the European currency union, Greece, now becoming insolvent."

"This is about defending the common European currency as a whole, and with it we are defending the European project," Schaeuble said.

"The situation is very serious and no one can say that we are already out of the woods with today's decision," Foreign Minister Guido Westerwelle said. "What is important now is that we must extinguish the fire so no brush fire spreads in Europe, and we must at the same time fight the cause of the fire."

The aid bill now needs only the signature of President Horst Koehler, a former head of the IMF, who can refuse to sign on constitutional grounds but barely ever does.

A group of academics who argue that the aid package violates the EU's Lisbon Treaty filed a complaint to Germany's highest court to try and stop it. However, analysts at the Royal Bank of Scotland said the move was "unlikely to block the German payment."

Separately, the Finance Ministry said a group of German banks and other financial companies have agreed to provide €8.1 billion ($10.3 billion) in financing to Greece — following up a commitment made earlier in the week.

Germany has Europe's biggest economy. Merkel long took a tough line on aid, and opponents accused her of dragging her heels ahead of a regional election this weekend.

Sigmar Gabriel, the leader of the biggest opposition party, charged that Merkel had "destroyed trust in the credibility of Germany's European policy."

Gabriel's Social Democrats abstained. They had hoped to couple the vote with a call for a tax on financial market transactions — which Schaeuble described as unrealistic, given a lack of international support.

The Greens, also in opposition, voted in favor. But the hard-left Left Party objected to the rescue package on the grounds it would make things worse for Greece.

Left Party lawmaker Gesine Loetzsch described the austerity package to be implemented in Greece as "brutal" and accused German leaders of doing too little to control markets.

"Speculators are Taliban in pinstripes, and people in our country must be protected from these Taliban," Loetzsch said — drawing a rebuke from speaker Norbert Lammert.
    
Portugal helps Greece despite own debt troubles

Portugal's parliament, meanwhile, agreed to lend Greece just over €2 billion ($2.55 billion) even though the Eurozone's poorest member is also under pressure from markets over its own debt load.

Prime Minister Jose Socrates said countries like Portugal which use the euro must jointly defend their shared currency, adding that the Portuguese economy was fundamentally sound.

Socrates said during a visit to Paris on Friday that the "financial speculation against our country has no justification and no economic foundation." He noted Portugal's debt is lower than the eurozone average.

However, markets fear that after years of feeble growth and low productivity, Portugal cannot generate the wealth it will need to service its borrowing.

French Prime Minister Francois Fillon insisted that there is "nothing comparable" between Greece and Portugal and said eurozone leaders are in a "fight against irrational speculation."

The interest rate gap, or spread, between Portuguese and benchmark German 10-year bonds, meanwhile, was still ticking higher. On Friday it rose 0.09 percentage points, which means Lisbon would have to pay almost 6.2 percent in interest to borrow on the markets — its highest rate since 1997.

The Portuguese government debt agency announced Friday it will refinance €4 billion of 10-year bonds on May 12. The same day, it will auction between €300 million and €1 billion in 10-year bonds, the institution said.

Some €20 billion of Portuguese debt comes due this year, most of it Treasury bills. So far this year Portugal has experienced no liquidity problems and no difficulty raising money on international markets. It has already raised €4.5 billion from bond issues in 2010.


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