May 31, 2011
Who will blink first on the next steps to rescue Greece – the mighty European Central Bank, jealously guarding its independence, or the powerful German political establishment, pledged to defend the taxpayer’s interest, and fearing a backlash from vengeful voters if it fails?
At the core of their disagreement stands the question of whether private creditors must somehow – at least voluntarily – be involved in any deal to ease the terms of Greece’s debt burden, and buy more time to turn that economy round.
Across the party spectrum in Berlin there is a remarkable degree of agreement that bondholders must share the burden with the taxpayer in any new programme. It is not just Wolfgang Schäuble, the finance minister, who says so, but all the leading party finance spokesmen in the German Bundestag.
At the ECB headquarters in Frankfurt, however, any such deal is seen as unwise and unworkable. Several executive board members have declared that if Greece’s sovereign bonds are rescheduled in any way, they will no longer be usable as collateral for pumping liquidity into the Greek banking system. That would spell disaster for the Greek economy.