EU leaders had agreed in principle to help Greece at their informal summit in Brussels on 11 February. But their statement of political support lacked sufficient detail to help Greece with its core problem of lowering the interest rate that it has to pay on its government bonds.
Finance ministers of the eurozone made some progress at a meeting on 15 March, agreeing that the eurozone countries would offer bilateral loans, but at market rates.
Angela Merkel, Germany’s chancellor, wanted such a decision to be taken at the highest political level – the European Council. And there was a fundamental disagreement between Merkel and French President Nicolas Sarkozy over whether the International Monetary Fund (IMF) should be involved in assistance to Greece. Sarkozy was deeply opposed to bringing in the IMF, partly because he fears giving a boost to the political fortunes of its managing director, Dominique Strauss-Kahn, the French socialist who may yet be Sarkozy’s strongest rival in the 2012 presidential elections.
No taxpayers’ money
Merkel was still holding out against agreeing a deal until a few days before the summit. She insisted that Greece was responsible for sorting out a mess that was of its own making. She refused to use German taxpayers’ money to help Greece by offering cheap loans. The message from Berlin was that Greece should go to the IMF as Latvia, Romania and Hungary had already been obliged to do. She was concerned to avoid doing anything which could be construed as a bail-out, which is specifically ruled out by the EU’s treaties and so might be challenged in Germany’s constitutional court. She also wanted to avoid setting a precedent with Greece that would then be exploited by the likes of Portugal, Spain or Italy, which might be tempted not to confront the problems in their public finances.
European Commission President José Manuel Barroso stepped up pressure for a deal, urging leaders, particularly Merkel, to agree a mechanism to help Greece, although he was agnostic about the role of the IMF.
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German government officials were briefing until the Friday before the summit that assistance for Greece was not on the agenda. Then, on the day of the summit Merkel started showing signs of softening, telling her national parliament that there could be agreement on help for Greece.
Merkel and Sarkozy met on Thursday before the European Council got underway. Jean-Claude Trichet, the president of the European Central Bank, was brought into the meeting but did not participate throughout. Herman Van Rompuy, the president of the European Council, was brought in near the end. After one-and-a-half hours the two leaders had reach a compromise.
There would be a role for the IMF, as Merkel had insisted, but all eurozone members would participate and the eurozone members would provide the majority of the financing, allowing Sarkozy to say that a “eurozone instrument” had been created. Loans would be at market rates so there would be no question of a subsidy and the decision to trigger the mechanism would require the unanimous approval of all eurozone members, so Merkel would retain a veto over future action.
With an agreement in place between Merkel and Sarkozy, the summit with 27 leaders began. After a first working session on the Europe 2020 strategy for boosting innovation, growth and jobs, Van Rompuy called a meeting of eurozone leaders at 8.30pm. Aperitifs were to be served – as a prelude to a working dinner of all 27 leaders. George Papandreou, the Greek prime minister, left the room, along with the leaders from countries not in the eurozone.
There was no objection to the plan put together by the eurozone’s two most powerful countries and after 45 minutes they agreed a statement setting out how help would be made available to Greece if it was needed.
While the eurozone meeting was taking place, delegations outside the room were taken aback to read in the eurozone statement that: “We consider that the European Council should become the economic government of the European Union.”
Van Rompuy then invited the leaders from all 27 countries back into the room for a discussion of the agreement. The wording in the eurozone statement was changed to say that “the European Council must improve the economic governance of the European Union”.
In the French version, the word “gouvernement” was retained and the text was released at 9.30pm, while the dinner went on until 11pm.
Challenged about the ambiguity between the different versions, Van Rompuy said after the summit that it was a case of “asymmetric translation”.
Merkel said afterwards that she was “very satisfied” with the deal, which showed that eurozone countries would not allow the euro to be destabilised.