German Finance Minister Wolfgang Schaeuble said loans for Greece are good for Germany too. He said he hopes they will stabilize the euro zone and discourage speculation against euro-zone countries.
Schaeuble is on the defense over a possible loan to Greece
Germany's Finance Minister Wolfgang Schaeuble defended the possibility that Germany and other euro-zone countries might lend debt-stricken Greece sorely needed funds on German public television on Thursday morning. Such loans would stabilize the wider euro zone, he said, and that negotiations between the German government and international financial officials were being conducted in Germany's own interest.
German taxpayers don't want to pay for Greece's mistakes
"If we fail," he said, "then speculation against all countries in the euro zone would increase, and probably against other countries outside the euro zone as well."
Last week Greece asked for emergency loans of 45 billion euros ($59.5 billion) from the European Union and the International Monetary Fund (IMF) to meet a looming May 19 deadline to pay back nine billion euros of its debts. On Wednesday, Schaeuble and German Chancellor Angela Merkel held meetings with the heads of the IMF and the European Central Bank (ECB). Germany could be on the line for 8.4 billion euros.
But according to Schaeuble that money won't be coming straight out of the German taxpayer's pocket. "Making guaranteed loans available is no small thing," he said, "but it's not the same as spending taxpayers' money."
Sinn says don't count on Greece ever paying Germany back for the loans
Instead, he said, the loans would come from KfW, a state-owned bank. "We hope it won't cost anything," he said. The point of the loans is to get Greece back on its feet and solvent. The loans would be guaranteed by the German government, however, he said, and there is the risk that Greece would not be able to pay back the loans.
On Wednesday, Hans-Werner Sinn, president of the Ifo Institute for Economic Research, said that Greece would likely never pay back the loans. Greece is no position to carry out the necessary budgetary rigor to pay Berlin back, he said.
Sinn is hosting the annual Munich Economic Summit on Thursday afternoon where German President Horst Koehler and ECB head Jean-Claude Trichet are scheduled to give the keynote addresses. This year's topic is "The Financial Crisis: The Way Forward."
Stricter rules needed
Axel Weber, head of the German Federal Bank, the Bundesbank, told Thursday's edition of the German daily Bild that the present crisis demonstrated the need for a significant reform in the EU's financial regulations.
"The German taxpayer profits from a stable euro, and we have to protect that," he told the paper, justifying Germany's contribution to the proposed bailout of Greece. "But to make sure this remains an absolute exception and that in the future things don't reach this stage in the first place, we have to significantly tighten the rules in the EU."
Weber admitted that Greece's behavior in the past and the current situation was a heavy burden for the euro. "Helping Greece is currently the best method for making sure the crisis does not spread to other member states," he said.
The Bundesbank chief also added that talk of expelling Greece from the euro zone was useless, since shutting a country out would be legally impossible.
Editor: Rob Turner