Thursday, February 23, 2012

Will Germany Balk at a Greece Bailout?

“European solidarity is not an end in itself and should not be a one-way street. Germany’s engagement has reached it limits,” said the text, drafted by Chancellor Angela Merkel’s Christian Democrats and Free Democrat (FDP) allies.

“Germany itself faces strict austerity to comply with the national debt brake,” said the declaration, which will go to the Bundestag next week. Lawmakers said there is no scope to boost the EU’s “firewall” to €750bn, either by increasing the new European Stability Mechanism (ESM) or by running it together with the old bail-out fund (EFSF).

The tough stance reflects popular disgust in Germany at escalating demands. Bowing to pressure, Chancellor Merkel’s office said an increase in the ESM was “not necessary” since Italian and Spanish bond markets have recovered.

Germany is now on a collision course with world powers, the IMF and even key allies in Europe’s AAA-core. The Netherlands and Finland are willing to boost the EU firewall to €750bn.

The IMF has hinted it may cut its share of Greece’s €130bn (£110bn) package and warned that its members will not commit $500bn (£318bn) more in funds to ringfence Italy and Spain unless Europe beefs up its rescue scheme.
It's like a game of chicken.

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