PARIS (MNI) – Germany is in disagreement with other Eurozone
governments over how high the interest rates should be on loans to
Greece in the event Athens calls on the emergency aid package agreed
late last month by EMU leaders in Brussels, the Financial Times reported
Sunday.

The dispute could hold up technical details of the contingency aid
package, according to the report.

Citing unnamed EU officials, the FT said most Eurozone nations are
willing to charge 4% to 4.5% on loans to Greece — the same rate paid by
other major Euro area debtor nations, including Portugal and Ireland.

Germany, however citing the terms of the agreement that state loans
to Greece should be “unsubsidized,” says that 6% to 6.5% — the rate
Athens pays now on 10-year borrowing — would be more consistent with
the spirit of the accord. According to the report, Berlin is worried
that if it agreed to cheaper financing, the German Constitutional Court
could veto the arrangement.

According to the newspaper, some officials complained that charging
the same rates Greece already pays in the market would defeat the whole
purpose of emergency aid.

“If you say Greece’s whole consolidation effort is endangered by
it paying such extremely high spreads…you have to ensure the spread
comes down,” one senior EU official was quoted as saying. Greece is
hoping to secure borrowing rates in the 4% to 4.5% range, the report
said.

At a summit meeting in Brussels late last month, leaders of the 16
Eurozone nations agreed on a contingency package for Greece that would
include aid from the International Monetary Fund and from Eurozone
nations — the latter in the form of bilateral loans, the amounts of
which would differ among donating countries according to the size of
their capital subscription at the European Central Bank.

The aid would only be provided as a “last resort,” in case Greece
was unable to finance itself in financial markets.

Shortly after the deal was struck, conflicting reports started
circulating about the relative size of the contributions by the IMF and
the Eurozone. French President Nicholas Sarkozy said the Eurozone would
contribute about two-thirds of the total amount, thus retaining control
over any eventual rescue package. But Germany’s weekly Der Spiegel later
reported that the aid amount would be about E25 billion, split half and
half between the IMF and the Eurozone.

The FT report said the amount of the total package could be about
E30 billion, with E10 billion, or one-third, coming from the IMF — at
interest rates considerably lower than what the Eurozone is discussing.

–Paris Newsroom, +331=42=71-55-40; bwolfson@marketnews.com

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