EU struggles to agree hard line on Greece

Financial Times
May 23, 2012

Tensions have begun to emerge among EU leaders over how hard a line to take with Greece as the prospect looms of parties opposed to the country’s harsh bailout terms winning next month’s elections.

Nervousness among eurozone policymakers about how to tackle an issue that could end in Greece crashing out of the single currency was reflected in the fact that Greece was not formally on the agenda of Wednesday’s EU summit in Brussels. But differing approaches were evident in the run-up to the meeting.

In its monthly report, Germany’s Bundesbank insisted on a hard line, shared by the European Commission, saying that any flexibility in the terms of the €174bn bailout for Greece would question anew all the efforts at fiscal discipline that the EU has spent the last two years building.

“A significant dilution of existing agreements would damage confidence in all euro area agreements and treaties and strongly weaken incentives for national reform,” the Bundesbank said.

It added that the remainder of the eurozone could cope with a Greek exit: “The challenges this would create for the euro area and for Germany would be considerable but manageable given prudent crisis management," it said.

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