Bank involvement?

German newspaper Die Welt has reported that the EU is considering a new levy for European banks ahead of a special meeting of heads of state on Thursday in Brussels.

According to an unnamed EU source, the plan would see the banks contribute directly to the Greek private sector. The paper also says that a German plan to extend the maturity date for Greek state bonds is unlikely to succeed amongst EU leaders.

A problem for the whole EU

If some commentators are to be believed, the Greek debt crisis is escalating into a threat to the European Union itself. Greek Prime Minister George Papandreou has consistently appealed to the EU to act more vigorously in handling the issue.

His government has in recent months introduced unprecedented public budget plans, and they have proved extremely unpopular with large sections of the public.

Now, according to Papandreou, it falls to the EU to make the courageous decisions.

"It is time for Europe to wake up," Papandreou told the pro-government Greek Sunday newspaper Kathimerini. The newspaper says the important decisions have largely been taken, and private creditors are also being asked to contribute.

But this unprecedented restructuring of a eurozone country entails great risks, because credit ratings agencies could decide to classify it as "selective default."

Central bank to take responsibility

Fear of such a reaction has prompted the European Central Bank to insist that the involvement of private creditors is voluntary. It prefers the buying back of Greek bonds through the European rescue package (EFSF).

"We have said that this would be a useful alternative," ECB board member Lorenzo Bini Smaghi told the Greek newspaper To Vima.

"It would allow the private sector to sell the bonds at the current market price, which is currently below their nominal value," Smaghi added.

Against Eurobonds and debt restructuring

The president of Germany's central bank, Jens Weidmann, has also positioned himself. But while he has been vocal about what he does not want, he has not offered a clear strategy. Weidmann has warned against the introduction of Eurobonds and a restructuring of Greek debt.

"Nothing would do such sudden and long-lasting harm to the incentive of having sound fiscal policies as a shared liability for national debt," Weidmann told the German newspaper Bild am Sonntag. But this is exactly the idea that has been floated by some politicians and economists, who believe it would be a solution for the Greek crisis.

Cancelling Greece's debt would also be problematic, he claimed. "Greece consumes significantly more than it produces and the national budget shows a deficit," said Weidmann, before adding that if this did not change, there would be no real improvement.

German opposition parties have also weighed in. Andrea Nahles, General Secretary of the center-left Social Democratic Party, continues to rail against the ratings agencies. In her opinion financially beleaguered eurozone nations should be excluded from the ratings system imposed by the agencies.

"We should consider new regulations that allow countries that have required a rescue package to be taken out of the scoring system of agencies temporarily," Nahles told the German newspaper Hamburger Abendblatt. But others think that this is akin to shooting the messenger.

The European project in doubt

Renowned German historian Heinrich August Winkler believes that the "European project" itself is in danger. He raised his doubts in an interview with the German news agency dpa.

Without political agreement, he said, the European project was destined to fail. Winkler has called for a program to make economically struggling countries more competitive and believes that the 27 member states of the EU are ready for greater integration.

"This would probably only be the 17 eurozone member states at first, but it is something that must be open to all other states that want greater European unity," he said.

A special summit is planned for Thursday, although, theoretically at least, European leaders have until autumn to find a solution to the Greek crisis, with refinancing secured for the country until then.

But with the ratings agencies constantly vigilant, and the markets jittery, European leaders will be hoping to find a solution sooner rather than later.

Author: Zhang Danhong, André Leslie (Reuters, dpa, dapd) / rc
Editor: Ben Knight