Germany is proposing that Greece should temporarily cede sovereignty over tax and spending decisions to a powerful eurozone budget commissioner before it can secure further bailouts, an official in Berlin said Saturday.
The idea was quickly rejected by the European Union's executive body and the government in Athens, with the EU Commission in Brussels insisting that “executive tasks must remain the full responsibility of the Greek government, which is accountable before its citizens and its institutions.”
But the German official said the initiative is being discussed among the 17-nation currency bloc's finance ministers because Greece has repeatedly failed to fulfill its commitments under its current €110 billion ($145 billion Canadian) lifeline.
The proposal foresees a commissioner holding a veto right against any budgetary measures and having broad surveillance ability to ensure that Greece will set its priorities on repaying its debt as scheduled, the official said. The person was speaking on condition of anonymity because the talks are confidential.
Greece's international creditors — the so-called troika of the International Monetary Fund, the European Union and the European Central Bank — are currently negotiating another €130 billion rescue package for the heavily indebted country.
But German news magazine Der Spiegel on Saturday cited an unnamed troika official as saying that Greece might need a total of €145 billion in its second bailout package amid the country's prolonged and sharp recession.
The German proposal, first reported by the Financial Times, is likely to spark controversy in Greece.
A powerful budget commissioner would further diminish the political leeway of Greece's government, just as politicians there are gearing up for an election set to take place this spring.
A government official in Athens, speaking on condition of anonymity, said a similar proposal had been floated last year but got nowhere. Greece would not accept such a measure, he added.
The official spoke on condition of anonymity because no formal proposal has been made by the EU or Germany yet.
The unprecedented and sweeping powers for creditors would indeed deal a huge blow to Greece's sovereignty, but they could help mobilize more support for the government in Athens from its European partners.
Several German lawmakers have repeatedly said that giving more money to Greece is unthinkable without stricter enforcement and control of the conditions attached to the rescue packages.
Greece is currently locked in a twin effort, seeking to secure a crucial debt relief deal with private investors while also tackling the pressing demands from its European partners and the IMF for more austerity measures and deeper reforms.
Failure on either front would force the country to default on its debt in less than two months, pouring new fuel on the fires of Europe's two-year-old debt crisis. In that case, Greece would likely leave the eurozone, which would bring disaster to the country, destabilize the currency bloc, fuel panic on financial markets and ultimately threaten the fragile world economy.
However, officials say talks between Greece and private creditors on halving the country's privately held debt load have ended and a deal is very close.
Talks have taken place over the past two weeks, in a plan worth €100 billion.
A statement from creditor representatives Charles Dallara and Jean Lemierre says the two sides are “close to the finalization of a voluntary (private sector involvement) ... We expect to conclude next week as discussions on other issues move forward.”
The statement Saturday also refers to “the framework expressed publicly earlier this week by Luxembourg Prime Minister Jean-Claude Juncker in his capacity as Chairman of the Eurogroup.”
This means that the creditors have accepted an interest rate below 4 per cent for the new bonds that will be issued by Greece in place of the old ones.
Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos represented the Greek government throughout the talks.
Source: The Globe and Mail
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