Germans want EU budget commisioner for Greece

Euro billboard outside Athens bank (26 January) The eurozone's other members, Germany in particular, fear Greece will need an even larger bailout the second time

A leaked plan from the German government proposes a eurozone "budget commissioner" to take control of Greece's tax and spending, reports say.

The Financial Times, which has a copy of the plan, calls it an "extraordinary extension" of EU control.

Greek Education Minister Anna Diamantopoulou called the German plan "the product of a sick imagination".

The European Commission said the budget "must remain the full responsibility of the Greek government".

A German official told the Associated Press eurozone finance ministers were discussing the plan.

Analysis

The leaked document is a draft and the European Commission has already voiced its unease. But it clearly reveals the direction of German thinking: much tighter control of Greek policy-making. To control big economic decisions is to control much else.

But questions arise: what if a decision by a democratically elected government in Athens were vetoed by an unelected budget commissioner in Brussels, perhaps seen as the voice of Berlin? How might a decision be enforced?

The German government believes the nub of the Greek situation is that the government in Athens has over-spent, so must cut its spending.

But politics may be less black and white. Democratic legitimacy plus the feeling of ordinary people are also factors - in a potent political mixture.

Greece has failed to meet targets set by its international lenders.

It is currently negotiating a second bailout, worth 130bn euros (£109bn; $172bn), with its creditors.

If no agreement is reached in the next few days, Greece will not receive the next tranche of funds from its first bailout.

It needs the money to pay off a significant number of bondholders whose bonds mature in March. Without the bailout funds, Greece could be forced into an uncontrolled default from the euro.

'Disappointing compliance'

Under the German proposal, a budget commissioner would have veto powers over Greek budgetary measures if they were not in line with targets set by international lenders.

"Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time," the Financial Times quotes the German plan as saying.

Under the proposals, European institutions already operating in Greece should be given "certain decision-making powers" over fiscal policy, a German official told the Reuters news agency. He was speaking on condition of anonymity.

Some German lawmakers have welcomed the idea of the EU taking control of Greece's finances.

"In view of the fact that many of the proposals for Greece have not been implemented, the suggestion for more control and supervision goes in the right direction," Norbert Barthle, a budget policy leader for the centre-right CDU party of Chancellor Angela Merkel, told Reuters.

Germany, France and other euro zone states have so far described the 130bn-euro figure agreed in October as a red line that must not be crossed. However, the German magazine Der Spiegel carries a report saying Greece's creditors fear an extra 15bn euros will be needed.

Greece's planned austerity measures

  • New pay and promotion system covering all 700,000 civil servants
  • Further cuts in public sector wages and many bonuses scrapped
  • Some 30,000 public sector workers suspended, wages cut to 60% and face lay off after a year
  • Wage bargaining suspended
  • Monthly pensions above 1,000 euros to be cut 20% above that threshold
  • Other cuts in pensions and lump-sum retirement pay
  • Tax-free threshold lowered to 5,000 euros a year from 8,000

The European Commission (EC), the EU's executive branch, has said it wants to "reinforce" monitoring of Greek public finances, boosting "capacity" in Athens, but that the Hellenic state must remain sovereign, the AFP news agency reports.

"The Commission is committed to further reinforcing its monitoring capacity and is currently developing its capacity on the ground," AFP quotes spokesman Amadeu Altafaj as saying.

Despite two weeks of intensive talks, Greece has yet to reach agreement on debt relief with private investors.

They are discussing a debt swap, under which private creditors take a 50% cut in the nominal value of their Greek bond boldings, in return for cash and new bonds. The debt swap would relieve Greece of about 100bn euros of its total debt of 350bn euros.

Talks broke up on Saturday without agreement, but the Institute of International Finance, which is negotiating on behalf of private creditors, says it hopes to reach a deal in the coming days.

Talks have foundered over the rate of interest Greece must pay on the new bonds, which are expected to mature after 30 years.

In return for the first bailout, Greece agreed to sharply reduce public spending, including cuts in pensions and wages for public-sector workers.

The austerity measures have angered many Greeks. In Athens on Friday, protesters tried to blockade inspectors from the "troika" of lenders - the EC, the International Monetary Fund and the European Central Bank - in their hotel.

Elections in Greece are due to take place in April.

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