The divisions have emerged amid mounting concerns that Athens’ funding needs are much bigger than estimated just two months ago. They threaten to unpick a painfully negotiated deal reached with private sector bond holders in July.
While hardliners in Germany and the Netherlands are leading the calls for more losses to be imposed on the private sector, France and the European Central Bank are fiercely resisting any such move. They fear re-opening the bond deal could spark renewed selling of shares in European banks, which have significant holdings of Greek and other peripheral eurozone debt.
On a visit to Berlin, George Papandreou, the Greek prime minister, urged Germans to recognise the “superhuman effort” his country was making to impose drastic austerity measures in a deepening recession. “I can guarantee that Greece will live up to all its commitments”, he said. There is significant division over the move to re-open the bondholders’ deal, which could trigger a bigger and earlier restructuring of Greek debt. Even within Germany, officials are split over whether to press for a bigger “haircut” for private sector creditors. “In Germany, there are the hardliners and there are the moderates”, said one senior European official. “This is the hardliners’ stance."
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