Confidence in Greek assets sank to a new low on Monday, as Chancellor Angela Merkel of Germany kept up the pressure on Greece, insisting on tougher austerity measures, Judy Dempsey and Matthew Saltmarsh report in The New York Times.
Questions persist about when and how the aid package to Greece of up to 45 billion euros ($60 billion) might be delivered. Fears are also increasing that even with the money promised, Greece will have to restructure its debts, leaving investors booking losses and seeing the duration of the assets they hold extended.
“Germany wants to help,” Mrs. Merkel said on Monday in Berlin. But she insisted that any agreement by Germany to lend its share of the package depended on Greece meeting new conditions set out by the International Monetary Fund and the European Union.Greece has to accept “hard measures” for the three years specified in the I.M.F. program, Mrs. Merkel said. “When Greece accepts these tough measures not for one year but several, then we have a chance for a stable euro,” she added.
But at the same time, the German finance minister, Wolfgang Schäuble, said that the stability of the euro was at stake and was preparing to press for quick passage of the bailout in the German Parliament.
The German public has opposed any major bailout of Greece, and Mrs. Merkel herself has had to be persuaded to support the idea. Still, after adopting a hard line toward Greece, the German government seems reconciled to the idea of lending Greece about 8 billion euros. That would make it the biggest contributor of the total loan package.
When the idea of a Greek bailout was first floated this year, the assumption had been that an international aid package would buy Greece the time to restructure its economy and pay down its debt, estimated by the European Union at 115 percent of national output.
That confidence has now evaporated as investors focus on long-term obligations, which continue to grow as the cost of refinancing mounts. Investors appear unwilling to wait the months that it would require to see an improvement in the Greek budget deficit from the austerity measures being put in place.
Athens officially requested an aid package from its euro-zone partners and the I.M.F. on Friday. But the yield on 10-year Greek notes rose again on Monday, to 9.5 percent, setting another record since Greece joined the euro.
The euro also slipped against the dollar and the pound.
“The market is now pricing in a debt rescheduling,” said Robin Marshall, director of investment management at Smith & Williamson in London. “There’s an assumption that 45 billion euros will be inadequate.” He estimated that Greece would need to refinance up to 60 billion euros in bonds that are maturing during the next three years in addition to meeting interest repayments.
The lack of a plan for Greece to leave the euro area, which might help the situation by allowing it to devalue its currency, and the absence of a formal mechanism for the transfer of funds inside the European Union has laid open the structural weakness of the euro zone.
There is added danger if Germany and France delay financial aid: Banks in those countries have significant holdings of Greek debt, so any default by Athens could have ripple effects on asset markets elsewhere. Yet domestic political wrangling in Germany ahead of an important regional election next month has also led to doubts about how swiftly the aid will be transferred.
Mrs. Merkel had wanted to postpone any decision about the financial aid package to Greece until after the elections in North Rhine-Westphalia on May 9.
At the federal level, Mrs. Merkel’s coalition has a comfortable parliamentary majority, so it is highly likely that she will be able to push the enabling measures through. Still, her coalition partners, the pro-business Free Democrats, said over the weekend they would not support any “blank check” for Greece.
“The negotiations are still going on,” Mrs. Merkel said, adding they might be wrapped up by early May.
The German finance minister, Mr. Schäuble, said on Monday that it might be possible to complete legislation granting Greece financial aid on May 7, in time to enable Athens to refinance 8.5 billion euros in bonds that mature on May 19.
Mr. Schäuble spent Monday morning explaining to finance experts from all the political parties the details of the financial aid package and what legislation would be needed. Later at a news conference, he referred repeatedly to the stability of the euro.
“Our national responsibility is connected to Europe and will be guaranteed,” Mr. Schäuble said. He even asked Germans to be “more friendly” to their European partners. “It is not about judging the individual behavior of people in individual countries,” he said. “It is about the question of one currency. This common European currency must remain stable.”
Other leaders in Europe were more conciliatory toward Greece on Monday.
President Nicolas Sarkozy of France released a statement after a meeting in Paris with the president of the European Commission, José Manuel Barroso, highlighting the need for “rapid and resolute action against the speculation that is targeting Greece, in order to ensure the stability of the euro zone.”
Speaking on Monday in New York, the French economy minister, Christine Lagarde, said that the possibility of restructuring Greek debt was “off the table,” according to Reuters.
