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« Death by a Thousand Cuts | Main | If the Dollar Goes, What Happens to Your Portfolio? »
Wednesday
Jun222011

The UK to be sucked into the Greek Bailout by the Germans

Merkel and Cameron 23 June 2011.JPG
David, got a quid for the Greeks....
Sorry Pet...



The German government signalled yesterday that Britain would need to contribute to the new EU bailout being negotiated for Greece despite David Cameron's repeated assertions this week that the issue is a "red line" for the government.

The conflicting messages from Berlin and London paved the way for a likely clash between Germany and Britain at an EU summit opening in Brussels on Thursday and will unleash howls of protest from the eurosceptic media and the prime minister's backbenchers if he is forced to pledge more for Greece's rescue.

The bulk of the new bailout – the second for Greece in just over a year – is to come from a €440bn fund guaranteed by the other 16 governments of the eurozone.

But a separate European commission-administered fund of €60bn, for which Britain is also liable and which is known as the European financial stability mechanism (EFSM), should also be used for part of the proposed Greek rescue, senior German government officials said.

Cameron told the Commons that the Greek disaster – which will dominant the Brussels summit – was an issue for the eurozone.
"We don't believe the European financial stability mechanism should be used for Greece. We have made it clear that's not appropriate, and I don't think it will happen," the prime minister said.

But a senior German official contradicted this. He said the Greek rescue, expected to amount to up to €120bn, would not be agreed by the EU until next month, but that under German law the EFSM needed to be involved.

"The German legal situation is clear," he said. "The EFSM should contribute." Asked whether the UK could veto such a move obliging it to guarantee billions for Greece, the official answered: "I don't understand the question because the decision is taken by qualified majority vote … Everyone is tied to a QMV decision."

Britain is also liable for more loans to Greece through its contributions to the International Monetary Fund, which is heavily involved in the Greek rescue.

This is not contested by the government. But its stance on the EFSM would be supported by the Czechs and the Slovaks, both reluctant to help Greece avoid a sovereign default. The Czechs, outside the euro, are in a similar position to Britain. The Slovaks are in the common currency.

British officials say that in the past 10 days of turmoil in Greece and acrossEurope, the UK has not been asked to make a contribution and that they have also received assurances from the French they will not be asked to take part. Furthermore, the key decisions on what to do about Greece have been taken by eurozone governments, reinforcing the British case for not being involved.

In the €110bn bailout of Greece launched in May last year, the EFSM and the UK were not involved, the British point out. But this is simply because the EFSM did not then exist. In the two bailouts since then, of Ireland and Portugal, the EFSM has been used and Britain has been exposed.

"This is a political battle between Germany and the UK," said a senior European commission official.

A German parliamentary resolution 12 days ago said that "the future aid [for Greece] may involve bilateral payments as well as from the EFSM."

The new bailout deal, which may not be finalised until September, has to go before the parliament's budget committee in Berlin for endorsement.

Despite the Berlin official's emphasis on the German legal position, senior commission figures in Brussels said there was no legal obligation for the EFSM to be used in the Greek crisis and that this was a political issue to be decided by the 27 governments of the EU.

Thanks to The Guardian for this piece.

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sk chart 22 May 2011.JPG



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SK logo 26 May 2011.JPG




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