With France and Germany, the EU’s two largest economies promising “determined and coordinated action” during a mini EU summit held in Brussels on Thursday, Greece averted a humiliating recourse to the International Monetary Fund to stave off financial ruin. However, few details were made available how exactly that support would be given and the question of immediate and direct financial aid was completely sidestepped. Greece, which represents 2.7 per cent of the bloc’s $13-trillion economy, is the sickest member of the EU’s ailing economies and posted a budget deficit of 12.7 per cent of gross domestic product in 2009, the highest in the euro’s 11-year history and more than four times the EU’s 3 per cent limit. The country has fudged its account and systematically lied about the exact nature of its finances for over a decade.
Earlier this week, fears of a sovereign default by Greece sent shock waves throughout the EU with markets and the Euro falling sharply. The shaky economies of two other Euro zone members, Spain and Portugal, also came in for scrutiny amid speculation that this could mean very bad news for the EU’s currency. Which many economists deem to be artificially strong.
The mini summit was attended by European Council President Herman Van Rompuy, Greek Prime Minister Georges Papandreau, French President Sarkozy and German Chancellor Angela Merkel. “We agreed both on a process to strengthen the credibility of the Greek recovery plan and on a joint declaration of support for Greece,” the Elysee Palace in Paris indicated. “We now have a Franco-German text which we hope will be adopted by our EU partners.” The question of immediate financial aid to Greece was sidestepped by Mr. Van Rompuy who said: “Greece did not ask for any financial support.”
He said Greece had promised to adopt “additional measures” to cut public spending and that the situation would be closely monitored. These developments are likely to lead to further social unrest in Greece which has witnessed massive street demonstrations after the government decided to freeze public sector salaries and reduce the number of state employees. Over 3,00,000 people demonstrated in Athens on Wednesday.