José Sócrates reportedly begged for help last week as Portugal became the latest eurozone country tipped for a bailout. But the cynical response reveals rising tensions within the bloc
Portugal's prime minister, José Sócrates, insists his country does not need bailing out – but the bond markets think otherwise. Photograph: Miguel Riopa/AFP/Getty
Angela Merkel was locked in talks about the euro crisis when the phone rang in the gleaming chancellery in Berlin.
The Portuguese prime minister, José Sócrates, was on the line from Lisbon with a plea for help. Portugal is tipped to be the third of 17 eurozone countries to collapse under the weight of its sovereign debt, needing a German-led bailout. Sócrates sounded desperate and eager to please, according to witnesses.
He asked Merkel what he should do, promised to do anything she wanted, with one big exception. He would not ask for money – for a eurozone bailout with extremely tight strings attached.
According to accounts circulating in Berlin, Merkel left Sócrates to wait while she sought the views of her high-powered visitors – Dominique Strauss-Kahn, the French head of the International Monetary Fund, and Giulio Tremonti, the highly regarded Italian foreign minister who has recently been lobbying for the introduction of "Eurobonds" as part of a solution to the year-long crisis.
Merkel asked Strauss-Kahn about Sócrates' dilemma. The German-speaking IMF chief was dismissive. The Portuguese plea was pointless, he said, because Sócrates would not follow any advice he was given.
The exchange, which occurred last week in Berlin, highlights what a senior German official describes as "Europe's big communication problem".
In the midst of one of the EU's worst ever crises, its leaders seem to have a problem talking to one another. The level of trust between key policymakers and decision-takers is very low, hugely complicating the quest for a way out of the euro's existential challenge.
In Brussels this week, EU finance ministers wrestled with the latest political dispute over the euro: how to reconfigure the €750bn (£630bn) rescue fund set up last May. The meetings were deadlocked, with the European commission leading calls for a prompt increase in how much the fund can lend countries in distress, while Germany led the reluctant camp, arguing there was no need to rush either to top up the fund or to extend its lending activities.
The economic fundamentals in the eurozone are heading in contradictory directions: Germany and northern Europe emerging strong from recession, while southern Europe is locked into a vicious cycle of debt and deflation. This and the sovereign debt troubles of half a dozen countries have put the euro at risk. But the perils are compounded by the frictions between the political leaders charged with settling the crisis.
The same day last week that Sócrates was being brushed off by Berlin, José Manuel Barroso, commission president, announced in Brussels that the euro rescue fund had to be reinforced.
Publicly, Merkel and her finance minister, Wolfgang Schäuble, described Barroso's intervention as "unnecessary". Privately, the chancellor's office told Barroso to shut up, that the €440bn guaranteed by eurozone governments was none of his business since it was not his money.
The sniping has been going on for the past year. Greece's bailout in May was preceded by ugly exchanges about second world war reparations. In November, when Ireland was humiliated, Dublin complained bitterly about being bullied by the EU's big powers. It is now the turn of Portugal and Spain to feel the pain and pressure.
Olli Rehn, EU commissioner for monetary affairs, warned today of "complacency" among member states that refuse to re-model and increase the rescue fund. Germany, again, was the target of the discreet jibe. But the German government is not particularly concerned about Portugal, viewing its economy as too small to have a major impact on the fate of the euro. It took the same view on Ireland and Greece.
Between them, the three countries account for less than 5% of the EU's €12tn gross domestic product.
The primary concern for the core euro countries is international investor confidence in the single currency. It is the waning trust, particularly in the US, in the eurozone's rescue measures, rather than Portugal's plight, which is driving the pressure from the European Central Bank and the European commission for a more ambitious and more flexible bailout instrument.
Klaus Regling, the German official who manages the eurozone's main bailout fund, the €440bn European Financial Stability Facility, has spent much of his seven months in charge touring the bond and financial markets in the US and the far east to gauge investor sentiment. Senior officials say he is worried by what he has found. Key fund managers, especially in the US, have signalled that they fear the euro's days are numbered, that they are unimpressed by Europe's response to the crisis, and that they are divesting.
"The markets don't trust the package. Some Americans give the euro only a few years," said a senior EU official. After challenging the Germans to react more quickly and decisively – and being told to keep quiet – Barroso is to go to Berlin next week ahead of an EU summit in a fortnight.
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