As Greece teeters on default, EU pledges support, not cash
Bailout could undermine euro
BRUSSELS - European Union leaders faced down markets yesterday with a statement of support for Greece - but offered no detailed bailout for a debt crisis that has plunged the euro into its deepest crisis since it was launched 11 years ago.
The 16 countries that use the euro 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.
Markets reacted coolly to the vague promise of help. Analysts warned that worries over a Greek default have not gone away, despite assurances from the Greek government that it will do whatever it takes to reduce a massive budget deficit.
A Greek default would be a serious blow to Europe’s monetary union and undermine the whole idea of a common currency, vulnerable because it is used by countries with different fiscal policies. EU nations are reluctant to put money on the table for Greece, believing that this would let the country off the hook for years of economic mismanagement and faked statistics - and might encourage overspending by others who they think they, too, will be bailed out.
The euro continued its slide, dropping around 1.5 US cents over the day as hopes of immediate financial assistance faded. By early evening the euro was trading at $1.3630, near nine-month lows. It was $1.51 in late November.
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 yesterday, well below the 2.83 points seen overnight and 3.50 points last week.
Neil MacKinnon of VTB Capital said it is “inevitable, given the seriousness of the eurozone debt crisis, that the endgame is some sort of bailout. Otherwise risk of default or even breakup of the monetary union becomes a real possibility.’’
Germany, the EU’s richest nation, said it was ready to help if necessary. Chancellor Angela Merkel said eurozone nations would “stand shoulder to shoulder with Greece.’’ She stressed that the country has not asked for a bailout and is committed to making big budget cuts this year.
President Nicolas Sarkozy of France 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.
With the euro facing its worst crisis since its birth in 1999, European Central Bank President Jean-Claude Trichet also 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.
“One can count on our permanent alertness,’’ he said.
Leaders from the EU’s 27 nations 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.
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.
Prime Minister George Papandreou of Greece says his country “will not be needing help’’ and has not asked for any. He said Greece had convinced other countries that “we mean business.’’
“We believe a strong political message will be enough,’’ he told reporters. “If we do our job properly, then there will be no need for [further] measures.’’