Germany to shore up Greece, euro, by providing $29.6B over 3 years; others following

Merkel: $29.6 billion in aid for Greece planned

BERLIN — Chancellor Angela Merkel’s Cabinet approved legislation on Monday that would give Greece euro22.4 billion ($29.6 billion) over three years as part of a wider bailout, as the German government acknowledged that letting Greece go bankrupt could send the euro into a tailspin and hurt Germany’s own economy.

“It doesn’t only mean that we help Greece, but that we stabilize the euro as a whole, which helps people in Germany,” said Merkel, who, along with Germany, had been battered by critics for dragging its feet on any decision until Greek bonds were relegated to junk status last week.

The remark was a nod to the popular discontent in Europe’s biggest economy about having to pay so much to help a fellow European Union country that many Germans feel has been fast and loose with its finances for years.

The European Central Bank, meanwhile, suspended its rating limits on Greek debt.

Both moves came after European governments and the International Monetary Fund agreed Sunday to give euro110 billion ($145 billion) in loans to Greece over three years. The loans came after Athens adopted a new round of austerity measures that provoked fresh uproar among Greek workers.

IMF officials say Greece could start receiving money from the rescue package in about a week.

Germany would contribute euro8.4 billion ($11.1 billion) for the first year of the bailout this year, followed by euro14 billion ($18.5 billion) over 2011 and 2012, or 28 percent of the overall package. The money would come in the form of credit extended to Greece from KfW Development Bank, which is backed by the German government.

The draft law backed by the Cabinet will be debated by both houses of parliament, and Merkel wants to have it approved before she heads to Brussels on Friday for an EU summit on Greece.

In a first step, the two caucuses of the governing coalition approved the legislation Monday with only a few lawmakers voting against the draft — giving the strongest indication yet that the bill will be passed in time.

The coalition’s majority would be sufficient to pass the law. The first round of voting is scheduled for Wednesday with the final two following on Friday.

Merkel’s government had insisted on the latest Greek austerity package before it would move to free up aid. Her party faces a crucial regional election Sunday in North Rhine-Westphalia, Germany’s most populous state, and many German voters are angry that their taxes are being used to bail out Greece while Germany itself struggled through years of budget-tightening to stimulate its own economy. The election could affect the makeup of the upper house of Parliament and set the tone for future votes.

“This is just the tip of the iceberg and I am afraid of it,” Werner Selmer told AP Television News at Berlin’s main train station. “Is this necessary? Should we do this? I think yes, my feeling is yes, but I have a bad feeling, a very bad feeling.”

In Rome, Italian Foreign Minister Franco Frattini criticized Berlin for the delay.

“The later you intervene, the worse it gets.” Frattini said Monday, noting that the initial figure mentioned was “euro50 billion — 10 days later we decided on euro110 billion.”

France will contribute 20.7 percent of the total or euro16.8 billion over three years, at a fixed rate of 5 percent, French Finance Minister Christine Lagarde told Le Monde, saying the rate of interest is equivalent to the 3.75 percent variable rate charged by the IMF. The rate is above the 1.5 percent that France borrows at, a reflection of the risk, she said.

Finland will pay euro1.6 billion. Lawmakers there are expected to vote on the package within a week and likely to approve it since the center-right coalition government has a clear majority in Parliament.

Mainstream Dutch political parties said Monday they would support the Netherlands’ government paying its euro4.8 billion share of the Greek bailout package.

German Finance Minister Wolfgang Schaeuble said he would hold talks with key players in Germany’s banking industry Tuesday, including Bundesbank President Axel Weber and Josef Ackermann, chief executive of Deutsche Bank AG, Germany’s biggest bank.

The talks, he said, will be aimed at convincing market players of the solidity of the Greek austerity program.

Greece announced more austerity measures on Sunday worth euro30 billion ($40 billion) through 2012 — including public service and pension pay cuts and higher taxes. In response, about 1,000 garbage collectors and other striking municipal workers marched to the Greek parliament on Monday, chanting “trash for parliament, not the landfill!”

But Prime Minister George Papandreou insisted the new measures are vital for Greece’s financial survival.

“This is a chance for a fresh start,” Papandreou said Monday. “We are making changes that should have happened years ago.”

The ECB, the central bank for the 16 nations that use the euro, said Monday it was suspending the minimum credit rating requirement for all existing and new debt instruments “issued or guaranteed by the Greek government.”

The decision by the Frankfurt-based bank ensures that Greek debt can be used as collateral in ECB lending operations, despite the fact that Standard & Poor’s cut Greece’s rating to junk status last week.

“Clearly, desperate times call for desperate actions, and today’s ECB decision is one step in the right direction,” analysts with the Royal Bank of Scotland wrote in a research note.

Analyst Marco Annunziata of UniCredit Group in London sharply criticized the ECB’s move as “compounding the already significant damage done to the credibility of euro zone institutions.”

Greece’s new austerity measures are expected to exacerbate its recession, but the massive rescue plan will include euro10 billion ($13.3 billion) for a “stabilization fund” to support Greek banks, Greece’s Deputy Finance Minister Philippos Sachinidis told state television on Monday.

In Paris, Lagarde defended the bailout, telling Europe-1 radio it is “not a donation, it is not a subsidy” but a loan to push Greece to clean up its public finances. She was presenting a budget amendment later Monday to the lower house of parliament allowing the government to release French aid funds for Greece.

Lagarde also said she will authorize France’s market regulator to closely monitor ratings agencies, which EU officials have blamed for fueling the Greek debt crisis.

Greek labor unions, upset over a new round of spending cuts, have planned another general strike for Wednesday.

“These cuts will kill our income. Pensions in Greece are already very low,” said Dimos Koumbouris, head of a pensioners’ association, told the AP.

He feared the austerity measures, which cut back on holiday bonuses paid to public servants and pensioners, will force them to curtail their spending.

“Many retired people wait for their holiday bonuses to buy clothes and even extra food,” he said. “How will these people get by now?”

Greek Finance Minister George Papaconstantinou said the austerity program will hurt.

“There is no doubt that it is a very difficult program … that will hurt a lot of people who have no responsibility for what happened,” he said. “But … the choice is very simple. Either that plan, or have the country lined up against the wall.”

In Frankfurt, the DAX index was up nearly half a percent to 6,163. The Athens Stock Exchange opened up on the news of the loan agreement, before dropping back and closing down 0.9 percent at 1,854. Spreads on Greek bonds were down to 574 from above 600 in the morning.

Derek Gatopoulous reported from Athens. Associated Press news editor Angela Charlton and AP Business Writer Emma Vandore in Paris and Associated Press writers Juergen Baetz, David Rising and Matt Moore in Berlin and Matti Huuhtanen in Helsinki contributed to this report.