A German official says Chancellor Angela Merkel’s Cabinet has approved legislation to provide Greece with billions in aid as part of an EU bailout plan.
The official, speaking on condition of anonymity because the formal announcement was to be made later Monday, told The Associated Press the Cabinet approved the plan but gave no further details.
Germany’s contribution was to be euro8.4 billion ($11.14 billion) for the first year of the bailout. It now needs to pass both houses of Germany’s parliament but the legislation is being fast-tracked to be done by Friday.
The move came after European governments and the International Monetary Fund agreed Sunday to provide euro110 billion ($145 billion) in loans to Greece over three years.
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German Chancellor Angela Merkel’s Cabinet considered legislation Monday to provide Greece with billions in aid as part of an EU bailout plan, and the European Central Bank suspended its rating limits on Greek debt.
Both actions were needed after European governments and the International Monetary Fund agreed Sunday to euro110 billion ($145 billion) in loans to Greece over three years.
The Cabinet was to discuss Germany’s contribution of euro8.4 billion ($11.14 billion) for the first year of the bailout. Merkel says she is fast-tracking the legislation in hope of having it passed by Germany’s parliament by Friday.
“I think that this is the only way for us to return the euro to stability,” Merkel said of the Greek bailout. “It is a sustainable program, spread out over many years.”
Germany, the largest economy in the 16-nation euro zone, will be the largest contributor of loans and had insisted that Greece commit to new austerity measures first.
Many people in Germany are angry about their tax money bailing out a fellow EU member they feel has been dishonest in its accounting and profligate in its spending.
“This is just the tip of the iceberg and I am afraid of it,” Werner Selmer told AP Television News at Berlin’s main train station. “Is this necessary? Should we do this? I think yes, my feeling is yes, but I have a bad feeling, a very bad feeling.”
The discontent comes as Merkel faces a crucial regional election Sunday in North Rhine-Westphalia, the country’s most populous state.
German Finance Minister Wolfgang Schaeuble said a key aspect of the deal will be for the EU to react more quickly.
“The crisis was not recognized in time,” he said Monday. “That is going to be most important duty after it — to see what do we have to learn from it.”
Greece on Sunday announced more austerity measures worth euro30 billion ($40 billion) through 2012, including public service and pension pay cuts, higher taxes and a more streamlined government. Unions have protested sharply, but Greek Prime Minister George Papandreou insists the new measures are vital for his nation’s financial survival.
“This is a chance for a fresh start,” Papandreou said Monday. “We are making changes that should have happened years ago.”
IMF officials say Greece could start receiving money from the rescue package in about a week.
In a statement Monday, the central bank for the 16 countries that use the euro said the suspension of the minimum credit rating includes all existing and new debt instruments “issued or guaranteed by the Greek government.”
The decision by the Frankfurt-based bank ensures that Greek debt can be used as collateral in ECB lending operations, despite its credit ratings. Concern over Greece’s financial disarray was amplified last week whenStandard & Poor’s cut Greece’s rating to junk status.
“Clearly, desperate times call for desperate actions, and today’s ECB decision is one step in the right direction,” analysts with the Royal Bank of Scotland said in a research note.
Greece’s new austerity measures are expected to exacerbate its recession, but the massive rescue plan will include euro10 billion ($13.3 billion) in support for Greek banks that could be hurt by the recession, Greece’s deputy finance minister said Monday. Philippos Sachinidis told state television the money would be reserved for a “stabilization fund.”
In Paris, French Finance Minister Christine Lagarde defended the rescue loan package and said she will authorize France’s market regulator to closely monitor ratings agencies, which EU officials have blamed for fueling the Greek debt crisis.
Lagarde said “we must, of course, better control” ratings agencies with rules to keep them from downgrading a country in a “hasty, deplorable” way.
But she insisted on Europe-1 radio Monday that the bailout is “not a donation, it is not a subsidy” but a loan to push Greece to clean up its public finances.
Lagarde goes later Monday to France’s lower house of parliament to present a budget amendment allowing the government to release French aid funds for Greece.
Negotiators from the IMF, in Athens on Sunday, said Greek banks had escaped much of the global fallout from the U.S. subprime mortgage crisis, but were likely to face an increase in non-performing loansdomestically because of the recession. They said financial support would be granted after a “stress test” — simulating a worse-case scenario — was run on Greek banks.
Greek labor unions and opposition parties reacted angrily to the new austerity measures, accusing the government of breaking a pledge not to impose any further cuts after previous austerity measures in March. Unions are planning a general strike Wednesday.
“These cuts will kill our income. Pensions in Greece are already very low,” Dimos Koumbouris, head of a pensioners’ association that will help organize protests this week, told the AP. He said he feared that the austerity measures, which will cut back on holiday bonuses paid to public servants and pensioners, will force them to curtail their spending.
“Many retired people wait for their holiday bonuses to buy clothes, and even extra food,” he said. “How will these people get by now?”
Reaction in the markets was fairly lackluster around Europe, with the composite index in Athens down 1.3 percent at 1,846.68 points and Germany’s DAX 0.2 percent lower at 6,124.87.
The euro, meanwhile, was 0.8 percent down at $1.3229.
“The Herculean task ahead for the Greek government suggests that markets will not rest easy until there are credible signs of progress,” said Mitul Kotecha, head of global foreign exchange strategy at Credit Agricole.
“Investors would be forgiven for having a high degree of skepticism, given the degree of ‘fudging’ involved in the past, whilst Greek unions will undoubtedly not make the government’s task an easy one by any means,” Kotecha added.
