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Updated: February 11, 2010 18:42 IST

EU says it has a deal on Greek debt crisis

AP
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Greek Prime Minister George Papandreou, left, and French President Nikolas Sarkozy, share a word during an EU summit in Brussels, on Thursday. Photo: AP.
Greek Prime Minister George Papandreou, left, and French President Nikolas Sarkozy, share a word during an EU summit in Brussels, on Thursday. Photo: AP.

European leaders reached a deal on Thursday on helping Greece with a debt crisis that threatens to spread to other eurozone nations, EU President Herman Van Rompuy, said.

But Mr. Van Rompuy gave no details, saying leaders of all 27 EU nations would say more after summit talks.

“I will make a declaration later,” he said, after meeting Greek Prime Minister George Papandreou, French President Nicolas Sarkozy, and German Chancellor Angela Merkel.

Among possibilities 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.

Ms. Merkel talked down a full financial bailout, but said other European governments would not leave Greece in the lurch.

“We won’t let Greece be alone but there are rules and they have to be respected and based on that we’ll issue a statement and an explanation,” she said.

Nervous markets worldwide are watching for concrete assurance that the 27-nation European Union can help Greece stave off a default - and keep the crisis from spreading to other vulnerable countries, threatening Europe’s hesitant economic recovery.

Hopes of a deal have helped the euro climb higher. By early afternoon London time, it was trading over a cent higher on the day at just under $1.38.

The question ultimately is whether any statement at the end of the meeting will be strong enough to keep markets from selling off Greek government bonds, and, more broadly, Greek and European stocks.

French government sources said France and Germany want to offer only “political support” and will try to get the other EU leaders on board at Thursday’s meeting. A senior French official said the countries could follow up with more precise plans of real help at a later stage. The official, who spoke on condition of anonymity because of the sensitivity of the issue, did not provide specifics.

“Here’s the message: we are behind Greece,” the official said. “I think a message needs to be given to markets that we will know how to resolve the Greek question.”

A senior German official said that “no concrete aid measures are being considered for Greece or other countries” and that “there is no financing need at the moment” for Greece.

He said he expects Greece to come clean with details of spending cuts this year, going far beyond general promises to overhaul its public sector and reform pensions and health care.

The pressure is on leaders gathering in Brussels, who had hoped to talk on Thursday about long-term plans for making Europe more vibrant and competitive economically but instead are deep in worry about whether to bail out Greece.

Markets see Greece at risk of defaulting on its massive borrowings because it faces several years of sluggish growth and mounting debt that current austerity plans may not be able to stem. Greece’s fiscal problems have shaken the euro - the common currency for 16 European nations - and underscored the interconnectedness of the global economy.

Greece needs to borrow euro54 billion (nearly $75 billion) from bond markets this year to plug its budget gap. But officials in Germany and France - seen as drivers of any eventual aid plan for Greece because they are the biggest economies that use the euro - warn that they have not yet made any decision to put money on the table.

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

Mr. Papandreou on Wednesday promised to reduce Greece’s deficit to 8.7 percent of gross domestic product this year, from 12.7 percent last year, the highest in the EU and four times above an EU limit.

But 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 on Wednesday to protest austerity measures, and a much broader strike is planned for Feb. 24.


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