After all, last month’s EU summit became devoted to Franco-German efforts to create a mechanism to reassure the markets that Greece would not be left to swing.But the deal that was agreed was pretty much written by Germany. And the German government – mindful of deep popular hostility towards any help for Greece – put in two major caveats to any assistance.
The first was that any decision to help Greece would have to be unanimous; so Germany has a veto.
And the second was that lending to Greece could not be subsidised; that means at market rates.
Which makes many – including those in the financial markets – wonder what Greece might gain from any EU/IMF package.
Underlying the deal – though denied in all communiques and on-the-record statements – was a belief that a mechanism for financial relief would help Greece without ever being activated.
It was hoped that an implicit guarantee of support would reassure financial markets and so bring down interest rates.
The day after the eurozone agreement was struck that’s just what happened – the price of Greek debt fell pretty swiftly.
But, as happened in February in response to an extremely vague of support to Greece, it’s become pretty clear pretty quickly that the eurozone’s offer is, to say the least, a thin one.
In what way does Greece benefit from an offer of financial support if that support comes at exactly the same, presumably very high, price as that being exacted by the financial markets?
Suddenly some very influential commentators are talking about Greece not being able to pay it’s debts – not if, but when.
Over the past few days in Brussels, there has been some elaboration on what kind of deal Greece might expect. ‘Market’ interest rates could, it seems, be interpreted rather flexibly – for example, it might mean that Greece could borrow at the same rates as other eurozone countries that are in a similar financial position and are currently funding debt on the international markets. That would ease Greece’s pain.
But German politicians and spokesmen insist that there is no need for a bail-out yet.
And a leaked report from the German Central Bank – which directly criticised the bail-out plan agreed last month – piles pressure on to the German government to stand its ground.
The report suggests that last month’s eurozone agreement might undermine the stability of the euro. That sets off constitutional alarm bells in Berlin.
There’s disagreement about just how tightly the German government is bound by the rulings of its Constitutional Court in Karlsruhe; but a bail-out simply to help alleviate the financial pain that the Greeks are suffering would come under a swift legal challenge.
In a previous judgement, the court has laid down that the stability of the euro is the be-all and end-all of German currency policy.
That’s a double-edged judgement; anything that smacks of a political bail-out would not pass the test. Greek pain – however acute – is not enough to pass the test.
Only when Germany agrees will there be any assistance for Greece.
And only when the stability of the euro itself is challenged will Germany agree to assist Greece. Or, as one diplomat here put it, with a dry laugh, “only when the [Greek] body is cold”.