Wednesday

27th Oct 2021

Germany switches to support IMF aid for Greece

  • The International Monetary Fund, Washington (Photo: Kyrion)

Germany has performed a dramatic u-turn and now says it would support International Monetary Fund aid for Greece, were it requested

"We see no need for immediate action now. Greece has not asked for aid," a German source working closely on the subject told EUobserver on Thursday (18 March). "In case the situation of Greece does get worse, Germany would be open for an IMF solution," the person added.

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The statement marks a reversal of Berlin's previous position that the euro area should provide Greece with financial assistance, if needed, as indicated by a statement of EU leaders at in informal summit in Brussels last month.

The news comes only hours after Greek Prime Minister George Papandreou ramped up pressure on the German administration to agree to a European rescue package, telling journalists in Brussels he hoped a decision would be taken at next week's meeting of EU leaders.

"It's an opportunity to make a decision next week at the summit," Mr Papandreou said. "This is an opportunity we should not miss."

The European Commission and euro area states have been deep in negotiations in recent weeks in a bid to prepare a mechanism to transfer aid to Athens, should the government prove unable to refinance the roughly €20 billion in bonds that are set to mature in the coming weeks.

Eurozone finance ministers agreed on much of the detail at a meeting earlier this week, but subsequent German statements have indicated the government's deep reluctance to push ahead with a final political decision.

Reports suggest a ferocious internal debate has been raging within Angela Merkel's government over the legality of providing bilateral aid to another euro area state, with the decision apparently made this week that such a move would violate the German constitution.

The turnaround in favour of IMF support is likely to have a great impact on the EU's eventual decision on whether or not to provide financial aid to Greece. As the largest eurozone economy, Germany would most likely have been the largest contributor to any Greek bail-out.

"I would be very surprised if other European states moved ahead without Germany," Jean Pisani-Ferry, director of the Brussels-based Bruegel think tank, told this website.

The first suggestion Germany was changing its position came on Wednesday from Michael Meister, deputy leader of Angela Merkel's Christian Democratic Union party.

"We have to think about who has the instruments to push for Greece to restore its capital market access [if that were ultimately needed]," he reportedly told parliament. "Nobody apart from the IMF has these instruments."

Finland has also indicated it would support an IMF solution, with Italy and the Netherlands also thought to be in favour. Together, EU member states are one of the main contributors to the IMF.

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