Extraordinary demand for EU to control Greece: Germany says Athens must surrender financial freedom to receive new bail-out

By Jane Bunce

Last updated at 10:46 AM on 28th January 2012

The German government has called for Greece to hand control over its finances to the European Union, in what would be an unpredented expansion of Brussels' power.

The German plan would see a eurozone 'budget comissioner' given the power to decide Athens' tax and spending, in order for the embattled country to receive a second €130 billion (£109 billion) bail-out.

The commissioner would be able to veto decisions taken by the Greek government if they were not in line with targets set by international lenders.

Many Greeks are already protesting against moves by the EU to force a cut in state spending

The proposal, which highlights the deep level of mistrust between Greece and other EU countries, was circulated to finance ministry officials from the eurozone countries yesterday afternoon.

'Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignity to the European level for a certain period of time," the document says. "Budget consolidation has to be put under a strict steering and control system."

The plan comes after months of worstening relationships between EU members states and Greece. The appointment of economist Lucas Papademos as technocratic prime minister in November has not helped improve attitudes towards the financially stricken country.

Violent protests against cuts have already rocked the Greek capital and voters are unlikely to take kindly to EU moves to push through further reforms

The German plan comes amid intense talks to finanlise the second rescue package for Greece, which has repeatedly failed to meet the fiscal targets set out for it by its international lenders. Greece first needs to strike a deal with its private sector creditors in the next couple of days to unlock its next aid pacakge and avoid a chaotic default. If it does not receive fresh aid, Greece could default as early as March, when bonds totaling €14.5 billion (£12.2 billion) are due.

Prime Minister Lucas Papademos, a former European central bank vice president, has not yet been able to form a deal with Europe on his country's debt

Under the proposal, Athens would only be allowed to carry out normal state spending after servicing its debt. Creditors could be assured that defaults would not occur in future.

'If a future (bail-out) tranche is not disbursed, Greece cannot threaten its lenders with a default, but will instead have to accept further cuts in primary expenditures as the only possible consequence of any non-disbursement,' the Financial Times quotes the document as saying.

Athens has not yet responded to the proposal. A senior Greek finance ministry official said it was unaware of the plan and so was not able to comment.

'No country has put forward such a proposal at the Eurogroup,' a Greek finance ministry official said on condition of anonymity, adding that the government would not formally comment on reports based on unnamed sources.          

The plan is unlikely to be popular in Greece, where voters have already expressed anger about EU moves to intervene in its reform process.

Source : dailymail

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