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Press summary: Greece reacts angrily to German calls for EU control over Greek budget; Second Greek bailout hanging in the balance as German and IMF demands grow

30 Jan 2012

From the Open Europe daily press summary.

According to a leaked document obtained by the FT on Friday, the German government wants Greece to “accept shifting budgetary sovereignty to the European level for a certain period of time” after failing to enact the necessary cuts to its debt and deficit. Greece would also have to adopt a law committing it to servicing its debts “first and foremost”. Greek Finance Minister Evangelos Venizelos reacted angrily to the proposal saying it forced Greece to choose between “financial assistance” and “national dignity,” while it also “ignores some key historical lessons.” Greek Education Minister and former EU Commissioner Anna Diamantopoulou labelled the idea "the product of a sick imagination". EU Economics Commissioner Olli Rehn also resisted the idea saying, "Executive tasks must remain the full responsibility of the Greek government."

German Economy Minister Philipp Rösler, a member of the FDP, was the first German minister to support the proposal, saying, “If the Greeks cannot do it themselves, there must be stronger leadership and supervision from outside, for example from the EU.” In an interview with the WSJ German Finance Minister Wolfgang Schäuble suggested that “Greece needs to decide” whether it wants to meet the fiscal and structural adjustments necessary to gain a second bailout or face default. German officials have suggested the proposal is just one of many under discussion.

Reports suggest that negotiations on the voluntary Greek debt restructuring progressed over the weekend, although a deal will not be ready for today’s summit. Persisting disagreements over whether budgetary gaps would be met by an austerity drive, an increase in EU/IMF support, or an agreement by the ECB to write down its holdings of Greek debt, delay a resolution. Negotiations over the second Greek bailout continue. The IMF has recently presented Greece with a list of demands, which includes cutting 150,000 public sector jobs over the next three years. Open Europe’s Raoul Ruparel was quoted in the Sunday Telegraph saying, "If there is no agreement on the Greek restructuring, this summit will be little more than a sideshow."

On Friday evening the Fitch rating agency downgraded Italy, Spain and Slovenia by two notches and Belgium and Cyprus by one notch. Over the weekend the Spanish government called for ‘realism’ over its deficit targets for this year.
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