German government and european central bank (ECB) warn against relaxing the rules and insist on strict requirements. Meanwhile, negotiations in athens on debt cut go round in circles. Talks with the international banking association remained without concrete results and were postponed until wednesday, according to finance minister evangelos venizelos. Venizelos would not say whether he was optimistic.
ECB executive board member jorg asmussen argued in a letter to negotiators from the 17 euro and 9 other eu countries that the latest version of the "fiscal pact" treaty was a "substantial watering down of earlier drafts". Criticisms include weakened controls and expanded exemptions for deficit and debt reduction.
The slow-moving negotiations were also allowed to influence the tripartite summit of chancellor angela merkel (CDU), italian prime minister mario monti and french president nicolas sarkozy next friday (20.1.) in rome determine. Government spokesman steffen seibert said: "the federal government will continue to press resolutely for ambitious targets for nationally implemented debt brakes to be anchored in this fiscal pact"."
Implementation must be monitored, non-implementation sanctioned. "This is the principle that we are following." This was the only way the rules could create more confidence in the wahrungsunion. Despite unanswered questions, the federal government is "of good faith" that an "ambitious result" in germany’s interest will be achieved by the end of january, seibert said.
The 17 euro countries and so far nine other EU states want to participate in the "fiscal pact" that was launched at the EU summit in december. Since great britain is not joining in, an intergovernmental agreement is to be concluded in parallel with the EU treaty. Previously, it was planned that a country that failed to meet its savings targets would be automatically sanctioned. Sanctioning procedures should only be prevented by a majority decision.
Asmussen, who is representing the ECB in the treaty negotiations, criticized the current draft treaty: "in my view, these changes clearly run counter to the spirit of the original agreement for an ambitious fiscal pact."He opposed an extended exemption that would allow pact countries to increase their new debt above 0.5 percent of gross domestic product (gdp) in unusual circumstances. Exceptions should be limited to "natural disasters or severe emergencies beyond the control" of a government.
Negotiations in athens on the debt cut for greece did not produce any results on friday. Greek sources say there is a dispute over the interest rate of the new bonds to be issued after the 50 percent cut to replace the old bonds, and over guarantees that there will be no new debt cut. Negotiations are also underway to decide whether greek or – as the banks are demanding – british law should apply in the event of a legal dispute. The talk is primarily with the head of the international banking federation (IIF), charles dallara, with prime minister lucas papademos and finance minister venizelos.
The day before, the IIF had said there were still "unresolved core issues" and time was running out. The debt restructuring is seen as a crucial building block for the second, 130 billion euro bailout program for greece. It is also a prerequisite for the disbursement of further aid loans.
But even with an agreement with the IIF, greece’s individual private creditors had up to six weeks to declare whether they would take part in the debt cut at all. According to industry insiders, a number of hedge funds in particular are refusing to pay out the greek debt in full or are relying on default insurance policies. This is why the debt cut fell short of the targeted 100 billion euros. Then additional aid was needed for athens.
Experts from the EU, the international monetary fund (IMF) and the european central bank (ECB) are also expected in athens early next week. Your verdict will be decisive for the disbursement of further aid loans. On sunday, german federal minister guido westerwelle is also expected in athens for a brief working visit.