By GRANT DE GRAF
[Sourced and adapted from an article that appeared in the WSJ by LAURENCE NORMAN And PATRICK MCGROARTY]
BRUSSELS—The European Union's [EU] executive arm is keeping pressure on Germany and others to show flexibility in support for Ireland and Greece, ahead of crucial negotiations on the euro zone's future in coming days. EU consensus in supporting this stance will be a crucial test for the inherent strength of the union.
With leaders of the 17 nations that use the euro set to meet in Brussels next Friday to hammer out the basis of a "comprehensive package" of reform measures, Olli Rehn, the European Union Commissioner for Monetary and Economic Affairs, said Ireland and Greece must not be financially overburdened.
"I see a danger that we might overburden both countries with overly strict credit conditions," Mr. Rehn told Germany's Handelsblatt newspaper, distributed ahead of publication Monday.
He added that Greece's timeline to repay aid loans should be extended to seven years from 3½, the paper said. The EU commissioner appears keen to adopt a pragmatic approach towards the loans, rather than having to face the awkward position of a default, when the facilities become due.
Mr. Rehn has consistently called for the EU to consider easing the terms of the loans to Greece and Ireland, reiterating last week that the near-6% interest rates the Irish government must pay on its €67.5 billion ($94.4 billion) package should be debated.
A spokeswoman for Mr. Rehn had no immediate comment on the commissioner's remarks. Speculation would suggest that Greece may have procured the EU for adjustments in the terms of loans, as is anticipated to be the case with Ireland.
Mr. Rehn's latest comments come at a critical moment, with euro-zone leaders committing themselves to completing the reforms by a March 24-25 summit.
Sunday morning, the leaders of Ireland's Fine Gael and Labour parties agreed on a program for coalition government. Fine Gael leader Enda Kenny, who will almost certainly be voted prime minister when the Irish parliament meets Wednesday, and Labour leader Eamon Gilmore said they had settled outstanding issues, including a timetable for introducing more austerity budgets over the next four years.
The parties have been in talks for almost a week following elections dominated by Ireland's sovereign and financial crisis. Both parties campaigned on pledges to renegotiate parts of the debt plan, including lower interest rates on the loan. Fine Gael also said senior bondholders should take a hit as part of the bailout package.
In recent days, Mr. Rehn has said forcing bondholders to take a haircut was not on the agenda. He also said Friday that European leaders must not allow the "relative calm" in financial markets "to lower the level of ambition or slow down the completion of the reforms."
However, commission officials are privately concerned about the willingness of Germany in particular to show flexibility in the face of strong domestic political pressures to take a tough line.
In the Handelsblatt interview, Mr. Rehn was quoted appealing to German lawmakers to support the package of reforms that emerge from this month's negotiations.
"I ask the Bundestag [lower house] not to ignore remaining difficulties in financial markets," he was quoted as saying.
German Chancellor Angela Merkel needs the support of the Bundestag to increase the amount of aid Germany could provide its euro-zone partners under the current European bailout mechanism and to approve any major reforms of euro-zone fiscal rules. Germany is already by far the biggest contributor to the fund.
Members of Ms. Merkel's governing coalition have at times been critical of her moves to bind Germany more tightly to its euro-zone neighbors in the wake of a debt crisis. Political considerations will probably continue to constrain practical efforts by Germany to play a more meaningful role
On Friday, Ms. Merkel met with Mr. Kenny in Helsinki during a gathering of center-right European leaders. An official said Ms. Merkel signaled her willingness to renegotiate the terms of the Irish bailout—and look again at the Greek terms—if those governments sign onto tough additional reforms.
"The German position is [that there can be] a change to the Irish program only alongside additional measures that will make the country more competitive and less debt-laden," the official said.
Greek Prime Minister George Papandreou, whose government received a €110 billion bailout from the EU and International Monetary Fund in May, has also called for the terms of that package to be eased.
On Friday, Mr. Papandreou warned his fellow Greek Socialists of a new round of market turmoil if European leaders fail to reach a satisfactory solution to the continent's debt crisis this month.
On Monday, senior officials from the euro zone will meet again to continue talks on the reform package. The economic reforms Ms. Merkel is seeking from Ireland are a nod to her proposed "competitiveness pact," an agreement she wants from euro-zone leaders to coordinate fiscal policy and undertake some painful reforms, such as raising retirement ages and synchronizing corporate tax rates.
Speaking Friday, Ms. Merkel said "agreement is building, and we've reached a new level" of understanding that such commitments are necessary. But she acknowledged that the final agreement may include only a broad agreement to pursue reforms in place of specific policies.
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