Bertrand Benoit
Financial Times (UK)
May 25, 2004

Gerhard Schröder, the German chancellor, yesterday said his country’s offer to forgive a substantial amount of Iraq’s debt was conditional on an interim Iraqi government being given full sovereignty over the country on June 30. “We have said that there should be a substantial debt reduction for Iraq in the Paris Club [of government creditors],” Mr Schröder said, addressing foreign journalists in Berlin, “but you can only negotiate this with a government that is legitimate.”

Without a permanent seat on the United Nations’ Security Council, Germany has little say in shaping the United Nations resolution about the transfer of sovereignty in Iraq, now under discussion in New York.

But by linking debt forgiveness to the transfer of sovereignty, Mr Schröder appeared to be seeking some leverage in the debate. It is the first time the chancellor has drawn such a connection, and comes as Germany is stepping up its campaign for a permanent seat on the Security Council.

Saying that Germany was keen to participate in the debate about the new UN resolution, Mr Schröder spelt out the conditions for a genuine transfer of sovereignty in Iraq.

“Real competence must be transferred [on June 30],” he said. “For instance, access to the country’s natural resources. Without this there would be no transfer of sovereignty.

“It also means being able to decide on security matters. Again, without this, there can be no transfer of sovereignty.”

In December, Germany and France gave assurances to James Baker, special envoy of US president George W. Bush, that they would support “substantial debt reduction” for Iraq to help the country fund its reconstruction.

The IMF puts Iraq’s liabilities to the 19 Paris Club creditors at $40bn, with Germany owed between $2bn and $8bn, depending on how much accrued interest is included. Other countries and private creditors are owed about $80bn.