GERMANY:GERMAN CHANCELLOR Angela Merkel has conceded the second Greek rescue package hinges on a "high degree of trust" with banks to deliver the promised level of voluntary private sector involvement (PSI).
Hours after returning from Brussels, the German leader vowed to keep to a minimum the taxpayer contribution to the €109 billion package, but said it was “too early to say what it would cost”.
A euro zone proposal, agreed with banks on Thursday night, foresees net voluntary PSI of €37 billion, rising to €50 billion to 2014 when bond rollovers are included. The figures were agreed in Brussels with Deutsche Bank chief Josef Ackermann, president of the Institute of International Finance (IIF).
“There is a high level of trust that the private sector will bring in this money because the IIF has talked to all big players and there is a high level of readiness to participate,” said Dr Merkel. “But a voluntary participation is a voluntary participation.”
Citing positive experiences in other bailouts, German officials said they were confident the attractions of new rolled-over bonds would outweigh the losses incurred.
“A writedown of 21 per cent is not that unusual,” said Dr Merkel. “There’s a high likelihood and plausibility that the figures presented by the IIF will come to pass.”
Presenting an end-of-term report to the press – solid economic growth and record low employment – she said she had delivered on her promise “for Germany to leave the economic crisis stronger than it went in”.
The euro zone’s problems “couldn’t be solved in a drum beat” but through consistent reforms and “conditional solidarity”, she said.
“This isn’t because we want to torture countries. But all of Europe has begun to undertake reforms that 18 months ago were inconceivable.”
Just as inconceivable 18 months ago is how far the German leader has come. Where EU bailouts were once strictly a rescue of last resort, she agreed to give the EFSF new pre-emptive competences, reflecting the view that financial fire prevention is cheaper than fire fighting.
Most interestingly, she backed the idea of a “European Monetary Fund” (EMF) propagated by French president Nicolas Sarkozy.
She produced a press conference transcript from March 2010 to refute claims that she ever opposed such an institution.
However, she insisted an EMF would be the “final product” in a chain of reform and further European integration.
Perhaps it was the 10 hours locked up in Brussels or her holiday looming on the horizon but for once Ms Merkel tackled head-on critics who accuse her of lacking passion for the EU.
“If I had as much passion for everything as I do for Europe then my days would have to have 48 hours,” she said.