July 14, 2011
German Finance Minister Wolfgang Schäuble has for months been insisting that any new aid package for debt-stricken Greece must involve private investors. Amid strong resistance, particularly from rating agencies, Berlin may now be backing down.
The markets, it would seem, are becoming impatient. Even as Berlin seems content to move only slowly toward the establishment of a second bailout package for debt-stricken Greece, investors are getting nervous.
As are rating agencies. Fitch on Wednesday downgraded Greek debt to one step above default status. The agency cited the lack of certainty on a second aid package for Greece as a factor in its decision. In addition, the International Monetary Fund (IMF) on Wednesday worsened its outlook on the Greek economy, forecasting that it would shrink by 3.8 percent this year instead of the 3 percent it had earlier predicted.
Still, sluggish progress is being made toward a second aid package for Greece. And according to a report in the business daily Handelsblatt on Thursday, Germany may be backing away from its demand that private investors make a "substantial contribution" to the bailout.
"(German Finance Minister Wolfgang) Schäuble is under massive pressure," an unnamed European Union diplomat told the paper. "He is being forced to bow to reality."
The Finance Ministry had been hoping that banks, insurance companies and investment funds would come up with €30 billion for the next bailout, which could be worth as much as €110 billion. But with many euro-zone countries opposed, the European Central Bank (ECB) skeptical and rating agencies concerned, the word inside the Finance Ministry in Berlin, according to the Handelsblatt, is that such private involvement has reached a dead end.
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