"We are considering support," Michael Meister, the Christian Democratic Union's deputy parliamentary leader and the party's financial affairs spokesman, told Bloomberg News Tuesday in a phone interview. "If Greece gets aid, it will only happen under strict conditions and if the Greek government undertakes far-reaching state reforms."
Greece is attempting to reduce its budget deficit from the current gargantuan 12.7% of GDP to the euro-zone mandated 3% by 2012.
A default by Greece would likely impact European banks, who hold a considerable amount of Greek bonds, and there would be other implications for credit markets and for the euro-zone and U.S. economies.
Fiscal/Economic Analysis: Word of aid talks is an encouraging development, but investors should not expect a signed deal any time soon: Tuesday's confirmation of chatter represents the first volley. Next, Germany, in exchange for aid, will likely request an austerity plan from Greece, which most of Greece's interest groups -- including large representations of organized labor -- will be appalled by, and likely characterize as permanently altering Greece's unique way-of-life.
Germany will also likely ask France, the euro-zone's second wealthiest nation, to contribute to any aid plan. Moreover, it is conceivable that other euro-zone members could contribute to the plan, along with International Monetary Fund participation.
From a purist standpoint, Greece should not receive aid: the fiscal crisis and large budget deficit are largely due to Greece's social spending policies. That said, the reality is that as soon as the euro-zone came into being, it all-but-guaranteed a policy clash between the euro-zone's monetary goals and various member states' fiscal policies: it's a wonder it did not occur sooner. The task now concerns how to help move Greece toward fiscal health without the majority of the population concluding that the changes and sacrifices required are too large, and not worth being in the euro-zone. It won't be an easy task.