EU Stumbles as Merkel Signals Greece Debt Deal Delay

By James G. Neuger and Jurjen van de Pol

for Bloomberg

European leaders sparred with Greece over a second rescue program, clouding progress toward a permanent aid fund and tougher budget rules designed to stabilize the euro.

Greece faced criticism that its economic makeover is faltering, and it fended off German and Dutch calls for a European overseer to take command of its budget after its deficits surpassed targets for two years.

“What the Greeks have to do is show they are ready to implement the package,” Dutch Prime Minister Mark Rutte told reporters before a European Union summit in Brussels today. “We can help Greece through this difficult phase, but then Greece has to execute all agreements they made with us.”

Bargaining with Greece over a debt writedown and its economic management threatened to overshadow a summit meant to point the way out of the financial crisis by speeding the setup of a full-time 500 billion-euro ($654 billion) rescue fund and signing off on a German-inspired deficit-control treaty.

Greece is making progress on one component of the package, nearing an agreement for bondholders to accept deeper losses on a 50 percent cut in the face value of more than 200 billion euros of debt.

European concerns that Greece can deliver budget cuts and economic reforms are holding up other parts of the package, which Greece needs to meet a 14.5 billion-euro bond payment due on March 20.

Deal Delay

“We won’t have a thorough discussion of Greece because the troika is in Greece and we don’t have a result of the talks with the banks,” German Chancellor Angela Merkel said.

The troika — the European Commission, European Central Bank and International Monetary Fund — oversees the 110 billion-euro program awarded to Greece last year and conducts talks on an additional 130 billion euros pledged in October.

With the euro economy set to contract by 0.5 percent this year, according to the median of 19 forecasts compiled by Bloomberg, the leaders will seek to send a pro-growth message by breaking down barriers to cross-border commerce.

Leaders will pledge to channel unspent subsidies and consider boosting the lending of the bloc’s project-financing arm, though without providing any figures, according to a draft summit statement obtained by Bloomberg News.

“We must do more to get Europe out of the crisis,” the draft statement said.

Treaty Revisions

Leaders also plan to complete the fiscal-discipline pact, which has gone through five drafts since nine countries outside the euro teamed with the 17 on the inside to work up the new rules in December. Britain was alone in boycotting the process.

A call by Poland, the biggest country with aspirations to adopt the common currency, to take part in euro-area decision- making looms as the main obstacle to a deal on the fiscal compact.

Poland’s plea to take part in euro summits is running into opposition from a group led by France, which has long aimed to turn the euro area into an exclusive policymaking club.

Poland will join the fiscal pact “under one condition — that these countries that take this co-responsibility are also participating in the decision-making process in terms of how this fiscal compact is executed,” Prime Minister Donald Tusk said today in Brussels.

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Jurjen van de Pol in Brussels at jvandepol@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

 

http://www.bloomberg.com/news/2012-01-30/eu-stumbles-over-greek-aid-package-as-merkel-signals-debt-agreement-delay.html