ATHENS/MADRID (Reuters) – After a brief summer lull, euro zone leaders are gearing up for a round of shuttle diplomacy in the run-up to what could be a crucial month in the 2-1/2-year debt crisis.
Greek Prime Minister Antonis Samaras will fly next week to Berlin and Paris to meet German Chancellor Angela Merkel and French President Francois Hollande. Earlier in the week, he will meet euro zone chief Jean-Claude Juncker, according to Greek and German government officials.
Merkel, now in Canada, will see Spain’s Mariano Rajoy early in September, according to the Spanish premier, and Italy’s technocrat leader Mario Monti has said he would travel to Berlin before August is out.
Merkel and Hollande are also expected to meet next week.
The flurry of activity presages a crucial period for the euro zone after European Central Bank President Mario Draghi bought a measure of calm by announcing he would do whatever it took to shore up the bloc, including tackling high Spanish and Italian borrowing costs.
On September 6, the ECB may spell out at its monthly policy meeting exactly how it could intervene in the bond market if asked. Markets will be on red alert for ongoing signs of internal opposition after Bundesbank chief Jens Weidmann made clear his reservations about the plan.
Six days later, Germany’s constitutional court will deliver a ruling on the euro zone’s permanent ESM rescue fund before which Berlin cannot ratify it. Dutch elections are held on the same day.
The expectation is that the court will not block the fund’s inception but it could demand greater political oversight.
Draghi has said the ECB could only intervene to lower borrowing costs if a euro zone sovereign had first asked for similar help from the bloc’s bailout funds, to which conditions would be attached.
On September 14/15, European Union finance ministers meet in Cyprus. By then, the troika of EU, IMF and ECB inspectors may have delivered a verdict on Greece’s debt-cutting progress.
Rajoy and Monti, who have consistently urged the ECB to act, are expected to put their heads together later in September.
Financial markets are stuck in a rut, knowing that next month could see fireworks.
“Everything depends on the data and ECB policy signals, what exactly they will do and when they will do it. Will Spain request aid?” said Nordea rate strategist Niels From.
Spain remains the biggest concern for euro zone leaders since a full bailout would stretch its resources to the limit.
Having insisted that Madrid needed no sovereign aid, Rajoy has now said he would consider seeking further help on top of a bank bailout of up to 100 billion euros but says he needs to see the ECB’s cards first. In three weeks time, he might.
“Until we know what decision the ECB has taken on this matter, we aren’t going to take one either,” Rajoy said on Tuesday.
Samaras will meet Merkel on August 24 and will insist he can ram through an austerity package worth about 11.5 billion euros ($14.2 billion) — a key condition to continue receiving EU/IMF bailout funds and avoid default and a possible exit from the currency club.
“Our key priority is to regain our credibility by showing our determination,” a Greek government official said.
Samaras will also raise a long-standing proposal that the austerity measures be spread over four instead of two years, to soften their impact on a Greek economy enduring its longest and deepest recession since World War Two.
No formal request will be made but the proposal will be broached as part of exploratory talks, the official said.
A two-year extension to narrow the budget deficit below 3 per cent of GDP in 2016 instead of 2014 was a key plank of Samaras’s campaign for the June 17 election that brought him to power as head of a fragile three-party coalition.
Berlin insists that Athens honour its pledges but will listen to what Samaras has to say, government spokesman Steffan Seibert said.
Many Germans oppose giving any more help and Merkel’s room for manoeuvre appears to be shrinking at a time when both Greece and Spain may soon require new rescues.
Greece has yet to nail down the requested austerity package but there is a clause in the current bailout deal that says the deficit adjustment period might be extended if recession is deeper than expected.
EU officials told Reuters last month that Athens was way off its bailout targets, was unlikely to be able to pay what it owes and further debt restructuring is likely to be necessary if it was not to be abandoned.
(Additional reporting by Andreas Rinke, Noah Barkin and Phil Pullella, writing by Mike Peacock.. Editing by Jeremy Gaunt.)