"I will work toward reaching sustainable decisions this evening,» Merkel told parliament shortly before a vote by German lawmakers on plans to leverage the euro zone bailout fund.
Merkel also said that she wanted to get Greece back on its feet as quickly as possible but that it would be a long path and a debt write-down alone would not solve Greece's problems.
"We must certainly accompany Greece for quite some time to come,» she said.
If, as expected, German lawmakers pass the motion, Merkel's negotiating hand will be strengthened in the Brussels talks.
Greek television stated that in a speech Merkel referred to 2020 and didn't give specific details on the haircut but the few numbers she cited were in line with a 50% haircut.
Bloomberg reports that banks are pushing back against European leaders on the size of losses they are ready to accept on Greek bonds as officials struggle to rescue the debt-laden country while avoiding a default:
There are limits “to what could be considered as voluntary to the investor base and to broader market participants,” Charles Dallara, managing director of the Institute of International Finance, an industry group that’s participating in the talks on Greek debt, said in an e-mailed statement yesterday. “Any approach that is not based on cooperative discussions and involves unilateral actions would be tantamount to default.”
The discussions are part of an attempt to solve the two- year-old sovereign-debt crisis that has pushed Greece toward default and roiled global markets. European Union leaders, who hold a second summit in four days tomorrow, are seeking an agreement on bolstering the region’s rescue fund, recapitalizing banks and providing debt relief to Greece to avoid contagion spreading to Italy and Spain.
Meanwhile in Greece, Government spokesman Ilias Mossialos said on Wednesday that PASOK will continue to rule with its 153 deputies in a bid to curb speculation that the Socialists will seek opposition support for a vote on an EU rescue deal. I can assure you that the main opposition leader, Antonis Samaras, will not support the Government as all he's doing is looking to score political points and opportunistically capitalize on the crisis.
And in an attempt to calm fears of a run on banks, ekathimerini reports that the head of Greece's bank stability fund said on Wednesday that deposits held at Greek banks were not at risk because his fund stood ready to recapitalize lenders hit by a restructuring of the country's sovereign debt:
"The capital that will be provided to banks through us means that depositors should feel safe. This should lift the fear that exists today about deposits,» Panagiotis Thomopoulos told reporters as he welcomed Horst Reichenbach, head of the EU task force in Greece.
Greek business and household bank deposits have shrunk by 20.9 billion euros or 10.2 percent since the beginning of the year. They are down by 48.8 billion euros or 20.5 percent since January 2010 when Greece's debt crisis began.
"Mr Reichenbach's presence here proves the interest of the EU for the good functioning of Greece's banking system, irrespective of what the solution will be for Greece's public debt,» Thomopoulos said.
Mr. Reichenbach's presence will do little to calm Greek citizens who are now suffering from an economic collapse, all thanks to the IMF's myopic austerity measures. What is the endgame of all this political posturing and dithering in Europe? Listen below to two excellent Yahoo Daily Ticker interviews with James Galbraith, professor of economics at the University of Texas.
Professor Galbraith still has concerns about the state of the US economy and thinks it's time for the US to spend its way to recovery. "I think the previous talk of a double recession was largely a red herring — through this entire period we have been on a track of very weak performance after an extraordinarily large downturn," he says. "From the stand point of the unemployed in the population there is practically no recovery at all and I think that is still the present situation."
As far as Europe is concerned, however, he has a much more dire prediction. "The peripheral countries of Europe are in deep difficulty [and] Greece in particular is being destroyed," says Galbraith, referring to forced cuts in healthcare, education and public services that have led to many violent protests. "I think [Europe's sovereign debt crisis] ends when there is a really violent blow-up on the periphery, probably originating in Greece or possibly in some other place ... . At some point the destruction of the society becomes intolerable, and that's where you'll see the flash point, it seems to me."
I certainly hope professor Galbraith is wrong about this but watching the political dithering going on in Europe makes me extremely nervous and it agitates me. Perhaps it's time to remind Germans of their past, as Albrecht Ritschl, professor of economic history at the London School of Economics, did in an op-ed article to the Guardian in late June, Germany owes Greece a debt:
The Germans are not amused these days. Look everywhere from tabloids to the blogosphere, and it seems that the public mood has reached boiling point. Loth to shoulder another national debt increase and finance another bailout, the Germans have started questioning everything from the wisdom of supporting Greece to the common euro currency, or indeed the merits of the European integration project altogether. This might be strange for a country that is nudging ever closer to full employment, and which is about to recapture its position as the world's leading exporter of manufactured goods from the Chinese. But the Germans say they've had enough: no more underwriting of European integration, no more paying for this and that, and certainly no more bailing out the Greeks.
What is truly strange, however, is the brevity of Germany's collective memory. For during much of the 20th century, the situation was radically different: after the first world war and again after the second world war, Germany was the world's largest debtor, and in both cases owed its economic recovery to large-scale debt relief.
Germany's interwar debt crisis started almost exactly 80 years ago, in the last days of June 1931. What had triggered it was Germany's aggressive borrowing in the late 1920s to pay reparations out of credit. A credit bubble resulted, and when it burst in 1931, it brought down reparations, the gold standard and, not least, Weimar democracy.
Having footed the resulting massive bill, after the second world war the Americans imposed the London debt agreement of 1953 on their allies, an exercise in debt forgiveness to Germany on the most generous terms. West Germany's economic miracle, the stability of the deutschmark and the favourable state of its public finances were all owed to this massive haircut. But it put Germany's creditors at a disadvantage, leaving it to them to cope with the financial aftermath of the German occupation.
Indeed, the London debt agreement deferred settlement of the reparations question – including the repayment of war debts and contributions imposed by Germany during the war – to a conference to be held after unification. This conference never took place: since 1990, the Germans have steadfastly refused to reopen this can of worms. Such compensation as has been paid, mostly to forced workers, was channelled through NGOs to avoid creating precedents. Only one country has challenged this openly and tried to obtain compensation in court: Greece.
It may or may not have been wise to put the issue of reparations and other unsettled claims on Germany to rest after 1990. Back then, the Germans argued that any plausible bill would exceed the country's resources, and that continued financial co-operation in Europe instead would be infinitely more preferable. They may have had a point. But now is the time for Germany to deliver on the promise, act wisely and keep the bull away from the china shop.
Now is still the time for Germany to deliver on the promise or risk throwing the entire world into another Great Depression and who knows, another world war. And someone should remind those 'brilliant economists' at the IMF/ Troika that the standard remedies are doomed to fail as austerity measures are only exacerbating economic hardship and won't help peripheral economies fix their debt profile. Perhaps it's time for China, Russia and even Israel and Turkey to come in and help stabilize the Greek economy. Once again, European leaders are proving to be completely incompetent.