German proposal seeks EU commissioner with sweeping powers to directly control Greece's budget

1/28/2012

BERLIN — Germany proposing that Greece should temporarily cede sovereignty over tax and spending decisions to a powerful eurozone budget commissioner before it can secure further bailouts, an official in Berlin said Saturday.

The initiative is being discussed among the 17-nation currency bloc's finance ministers because Greece has repeatedly failed to fulfill its commitments under its current €110 billion ($145 billion) lifeline, the person said.

The proposal foresees a commissioner holding a veto right against any budgetary measures and having broad surveillance ability to ensure that Greece will set its priorities on repaying its debt as scheduled, the official said. The person was speaking on condition of anonymity because the talks are confidential.

Greece's international creditors — the so-called troika of the International Monetary Fund, the European Union and the European Central Bank — are currently negotiating another €130 billion rescue package for the heavily indebted country.

But German news magazine Der Spiegel on Saturday cited an unnamed troika official as saying that Greece might need a total of €145 billion in its second bailout package amid the country's prolonged and sharp recession.

The German proposal, first reported by the Financial Times, is likely to spark controversy in Greece.

A powerful budget commissioner would further diminish the political leeway of Greece's government, just as politicians there are gearing up for an election set to take place this spring.

A government official in Athens, speaking on condition of anonymity, said a similar proposal had been floated last year but got nowhere. Greece would not accept such a measure, he added.

The official spoke on condition of anonymity because no formal proposal has been made by the EU or Germany yet.

The unprecedented and sweeping powers for creditors would indeed deal a huge blow to Greece's sovereignty, but they could help mobilize more support for the government in Athens from its European partners.

Several German lawmakers have repeatedly said that giving more money to Greece is unthinkable without stricter enforcement and control of the conditions attached to the rescue packages.

Greece is currently locked in a twin effort, seeking to secure a crucial debt relief deal with private investors while also tackling the pressing demands from its European partners and the IMF for more austerity measures and deeper reforms.

Failure on either front would force the country to default on its debt in less than two months, pouring new fuel on the fires of Europe's two-year-old debt crisis. In that case, Greece would likely leave the eurozone, which would bring disaster to the country, destabilize the currency bloc, fuel panic on financial markets and ultimately threaten the fragile world economy.

Despite two weeks of intensive talks, a debt relief agreement with private investors worth some €100 billion has yet to be reached.

Greek Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos resumed the talks with representatives of international banks and other private institutions in Athens Saturday.

The debt writedown is meant to reduce the country's debt-to-GDP ratio from 160 percent last year to 120 percent in 2020, or about Italy's current level, and it is a vital condition for the second bailout package.