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Tags: EU | Europe | Financial | Crisis

EU Leaders Offer Greece Moral Support But No Money

Thursday, 11 February 2010 01:47 PM EST

European leaders on Thursday offered moral support for Greece — but no money — as they sought to calm speculation that the Greek debt crisis may spread to other vulnerable countries and damage the euro currency.

The leaders promised to "take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole."

But they left out any detail about what they might do to prevent the country from defaulting on its massive debt.

With the euro facing its worst crisis since its birth in 1999, European Central Bank President Jean-Claude Trichet tried to lend his sizable credibility to shoring up market opinion about Greece, saying he will join in monitoring the government's promised budget cuts — and planning new ones if necessary.

"One can count on our permanent alertness," he said. The leaders also called on the International Monetary Fund — which has extensive experience in monitoring bailouts — to give its advice on Greece's efforts, though the EU leaders have ruled out Greece taking an IMF bailout loan, as have non-euro EU members Hungary, Romania and Latvia.

Markets gave a mixed reception to the leaders' statements.

The euro fell to $1.3614, having been as high as $1.38 earlier in the day on hopes of more substantive Greek bailout news. It traded at $1.51 in late November. German and French stocks were down, while shares in Britain, which doesn't use the euro, were flat.

But the bond market reacted well, with fears of default continuing to recede.

The spread, or difference between 10-year Greek bonds and a German benchmark stood at 2.71 percentage points by late afternoon on Thursday, well below the 2.83 points seen overnight and 3.50 points last week.

The Greek crisis is the leading edge of debt troubles that have hit governments in the developed world during the world's three years of economic turbulence, as they run up deficits by bailing out banks and spending to stimulate their economies.

Greek Prime Minister George Papandreou says his country "will not be needing help."

He said Greece convinced his EU partners "we mean business."

A Greek default would be a serious blow to Europe's monetary union, and fears that Athens might not be able to pay its debts have already led markets demanding higher borrowing costs for Greece.

Markets are also worried that the contagion could spread to other financially wobbly countries, such as Portugal and Spain.

Finance ministers will look at Greece's debt situation at a meeting Monday and Tuesday in Brussels.

Despite the lack of detail, many observers expect that the EU will have to quickly fill in the blanks.

Neil MacKinnon of VTB Capital said it is "inevitable, given the seriousness of the eurozone debt crisis, that the end-game is some sort of bailout. Otherwise risk of default or even breakup of the monetary union becomes a real possibility."

"Europe will probably not be able to avoid a rescue parachute," said Andreas Rees of Unicredit. "In this tense situation it has no alternative."

"It is no longer about Greece per se. Rather, the credibility and stability of the entire European monetary union is at stake."

German Chancellor Angela Merkel said eurozone nations would "stand shoulder to shoulder with Greece."

She stressed that the country has not asked for a financial bailout and is committed to making big budget cuts this year.

French President Nicolas Sarkozy didn't rule anything out, saying "we retain the possibility to reexamine this after observations."

But he didn't say what else European countries could eventually offer Greece.

European Union President Herman Van Rompuy, who led the talks between the EU's 27 leaders, said they had no fears that Greece's woes would spread to other eurozone countries with large deficits and low growth prospects.

"We only talked about Greece," he said. "We didn't mention other countries ... It concerns Greece and only Greece."

EU governments see the burden as now on Greece to prove that it can push through ambitious cuts to public spending and hike taxes as promised to reduce its budget deficit, the EU's largest, from 12.7 percent of gross domestic product last year to 8.7 percent this year.

Greece will report back to EU nations in March — when the EU's executive commission and finance ministers could order tougher action that Greece may find difficult to implement.

The ECB will also take part in keeping Greece on a tight rein, Trichet said Thursday.

"I confirm that the ECB will work with the (European) Commission in this exercise of monitoring the implementation of the Greek recommendations and will work with the Commission in working out proposals for needed additional measures," he told reporters.

Markets doubt Greece's credibility after it admitted falsifying statistics for years to make the deficit look smaller.

They also worry that Greece can't carry out any cuts because it risks social unrest.

Greek workers shut down schools, grounded flights and walked out of hospitals Wednesday to protest austerity measures, and a much broader strike is planned for Feb. 24.

Among possibilities for Greece that have been floated in recent days are EU member countries guaranteeing Greece's debt, a special credit line for the Greek government, and bilateral loans.

Greece needs to borrow 54 billion euros (nearly $75 billion) from bond markets this year to plug its budget gap.

So far it has been able to borrow from markets but is facing increasing interest costs as markets price in higher risk of a possible default.

© Copyright 2023 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

European leaders on Thursday offered moral support for Greece but no money as they sought to calm speculation that the Greek debt crisis may spread to other vulnerable countries and damage the euro currency.The leaders promised to take determined and coordinated...
Thursday, 11 February 2010 01:47 PM
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