Merkel plays it tough and … makes a U-turn

On Wednesday this week, in a session of the Parliament in Berlin, German Chancellor Angela Merkel told her audience that the European Union needs better rules to ensure that memberstates obey debt limits, and that she endorses the proposal of the German finance minister, Wolfgang Schauble, to ‘exclude countries from the eurozone when they over the long term no longer fulfil the conditions. Otherwise we can’t work together’. And she added: ‘we must not forget that the Greek situation is not created by speculators; speculators made it worse. The situation is created by years-long violation of the Stability and Growth Pact!’. Pointing to the treaty that created the euro.

Other European leaders like Nicolas Sarkozy, the President of France, have put more emphasis on providing financial aid to Greece. But Mrs Merkel placed the burden on Greece, to implement an austerity program designed to slash the budget deficit equal to 12,7 percent of its GDP. An aid package, as proposed by some finance ministers of eurozone, is for her not the right answer: ‘the turnaround must come from Greece’.

A day later the Greek Prime Minister, Giorgos Papandreou, met in Brussels the members of European Parliament’s special committee on the economic crisis. He tried to reassure the MEP’s saying that his government is doing ‘all it can’ to tackle the country’s budget deficit. He hoped a decision for a bail out would be taken at next week’s meeting of the 27 European leaders but was also hinting to the possibility involving the International Monetary Fund for help to stem the Greek budget crisis, a solution seen as a signal Europe’s inability to manage its own economic and monetary union. The reason that so far Germany and others shared hostility towards involvement of IMF.

But, only a few hours after Papandreou visit to the EP, it became suddenly clear that Mrs Merkel switched to support IMF aid for Greece and was no longer excluding a role for the IMF. The European Central Bank did not comment immediately but has warned against IMF involvement, fearing the EU losing control over events in Greece and its independence being undermined. It would give the US, the IMF biggest shareholder, a say in eurozone fiscal and monetary matters.