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Frantic EU Seeks Solution to Greek Debt Crisis

Wednesday, 24 March 2010 11:03 AM

The sliding euro and a downgrade of Portugal's debt put renewed pressure on European leaders Wednesday to come up with a bailout plan for Greece and stem the government debt crisis undermining their shared currency.

But agreement remained elusive as a Thursday summit approached. Markets increasingly expect any bailout for Greece to involve the International Monetary Fund — and EU governments are discussing whether they would permit that and add financial help from eurozone nations.

Germany is holding a back a deal, reluctant to put taxpayer money on the line for Greece. But failure to help an indebted eurozone country would be an admission that Europe can't halt the crisis in its currency union.

The latest vote of no confidence in vulnerable eurozone economies came with Fitch Ratings' downgrade Wednesday of Portugal's debt. The credit ratings agency said Portugal's prospects for recovery were weaker than its peers in the eurozone and it would have trouble shrinking its budget deficit.

The euro hit a 10-month low against the U.S. dollar on Wednesday on the Portuguese downgrades and the uncertainty over Europe's dithering over Greece — which says it will need eurozone or IMF help if markets keep charging it painfully high costs to borrow.

Greece's debt crisis has undermined the euro by showing that the rules supporting it have not prevented governments from overspending, hitting public accounts. Athen's woes are also putting pressure on other eurozone countries with troubled finances, such as Portugal and Spain.

European diplomats speaking on condition of anonymity said Spain's Jose Luis Rodriguez Zapatero is heading efforts to get the 16 eurozone nations to meet separately Thursday on the crisis surrounding Greece, in addition to the meeting by all 27 EU member governments.

Eurozone leaders have only met once for a summit before at the height of the banking crisis in 2008. "He is pushing hard for this and we think it is going to happen," said the diplomat.

EU President Herman Van Rompuy is also asking for a eurozone summit, said another EU official.

However, Germany is not keen, with a senior government official in Berlin saying "for us, there is no decision at this summit on aid to Greece."

He said aid "comes into question only as a last resort" when Greece has exhausted all efforts to raise money from bond markets.

The German government wants the IMF to be "significantly involved" in any bailout because it believes that it could face a legal challenge from the country's powerful constitutional court unless it can prove that that any European or German aid is the last option left to Greece.

The EU's top economy official insisted that EU leaders must act now because the euro is "facing a critical litmus test" and the financial stability of the currency union is under threat.

"Greece nor the eurozone are not yet out of the woods yet, and as there are still concerns over financial stability," he said.

"I call on the EU member states, especially the euro area member states, to seek such an agreement and a decision this week to show that the euro area is able to manage this kind of serious situation that we are currently facing," he said.

The countries that use the euro pledged last month to help Greece if the stability of the currency zone were threatened, but have not been able to agree on a financial rescue by other euro governments. Germany has opposed putting taxpayer money on the line to help Greece out of a crisis caused by years of overspending and faking its budget numbers.

German Chancellor Angela Merkel sees no need to act fast, saying Sunday that EU leaders shouldn't discuss a potential bailout at the two-day summit starting Thursday because Greece is not yet asking for help and is not on the verge of bankruptcy.

Merkel is also pressing for tough new rules to restrain deficit spending by eurozone members to prevent future debt crises.

Germany's economy minister Rainer Bruederle repeated that position Wednesday, telling the daily Passauer Neue Presse that "aid for Greece would be the wrong signal. We must not create a precedent that other eurozone countries can refer to in the future."

"It cannot be possible that German taxpayers have to pick up the bill for mismanagement in Greece and elsewhere," he said.

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The sliding euro and a downgrade of Portugal's debt put renewed pressure on European leaders Wednesday to come up with a bailout plan for Greece and stem the government debt crisis undermining their shared currency.But agreement remained elusive as a Thursday summit...
Wednesday, 24 March 2010 11:03 AM
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