© The Financial Times Ltd 2016 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
June 27, 2011 10:43 pm
European officials have begun debating contingency plans in case the Greek parliament fails to approve a €28bn austerity package, which will be voted on after a three-day debate that began on Monday.
The austerity measures have been agreed with international lenders as a condition of a July €12bn aid payment which Athens needs to avoid a sovereign default next month.
But according to people briefed on the talks, contingency plans are being urged by Germany, which is concerned that a failure in Athens could endanger the single currency and spread contagion throughout Europe’s financial system.
A senior European official involved in the Greece talks said no “plan B” had been discussed on a European level, however, and the Greek aid officially remained reliant on Athens passing the austerity measures. But the official acknowledged that Germany had been urging such a move.
“It is their plan [and has not] been discussed at eurogroup [meeting of EU finance ministers],” the official said. “Our message to the Greeks is there is no plan B, and there is not.”
But signs of concern have been emerging from Berlin. In an interview with German media, Wolfgang Schäuble, finance minister, said: “We are doing everything we can to prevent matters coming to a head in such a crisis, but we must at the same time be prepared for anything. That is our responsibility, and we are preparing for that.”
Jörg Asmussen, state secretary in the German finance ministry, made similar remarks on Monday.
European officials are torn over the issue, and the specifics of any plan B remain vague. One person who has discussed the issue with finance officials said there had been mention of using public funds to buy up Greek bonds at a discounted rate – the type of buy-back powers that were once proposed for the eurozone’s €440bn bail-out fund. Such a plan would amount to a voluntary restructuring that many market participants have supported.
European Union officials also contemplated direct bridging loans to Lisbon earlier this year when there was a risk that the collapse of the Portuguese government might make it impossible to agree an IMF-EU bail-out. But mainstream parties in Lisbon were able to form a consensus around the rescue, making such bilateral loans unnecessary.
“EU leaders are ready to contemplate increasingly bizarre and convoluted plans in case the Greek vote fails, but continue to avoid the most sensible option of an orderly restructuring like the plague,” said Sony Kapoor, head of Re-Define, an economic consultancy.
European leaders face a dilemma. Many have been insistent that no new aid can go to Athens without austerity measures being passed.
At the same time, many acknowledge that the crisis has moved beyond Greece and threatens to spread contagion in Europe.
Copyright The Financial Times Limited 2016. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.
Sign up for email briefings to stay up to date on topics you are interested in