European leaders gather in Brussels on Thursday for a summit devoted to economic policy amid growing speculation that they could come to Greece’s rescue in the first bailout by the eurozone of a single currency country.
The leaders appear determined not to let the Greek debt crisis and the risk to the European single currency hijack their musings on medium-term economic strategy, expected to dominate the agenda.
Athens and the eurozone enjoyed some respite from the pressure of the markets when the European Central Bank signalled that its head, Jean-Claude Trichet, had cut short a trip to Australia to rush back to Brussels for the summit.
That triggered speculation in the markets that the 16 eurozone countries may be preparing some form of bailout for Greece, which is teetering on the brink of national insolvency, beset by huge sovereign debt levels and a ballooning budget deficit. The euro recovered some of the ground it has lost recently as hedge funds and speculators have been betting against the single currency over fears of a debt crisis.
Signs of a rescue package came from Joaquin Almunia, the outgoing commissioner for monetary affairs, who told the European Parliament the summit should offer an aid package to Athens with strings attached. “I would like the leaders of Europe to say to the Greek authorities that in exchange for the efforts you are making, you are going to get support from us,” said Mr. Almunia. “We have got instruments to provide that in exchange for clear commitments that they will meet their responsibilities.”
Eurozone governments had agreed “in principle” to help Greece, a German government official told Reuters in Berlin.
By contrast, the European Central Bank and European Investment Bank ruled out involvement in a bailout.
And although recent days have seen the euro’s darkest hour in its 11-year life, officials in Brussels also played down talk of a rescue package.
“I don’t see any suggestion that anyone is coming with a bailout,” said a European commission official.
Across the institutions of the EU, from the central bank in Frankfurt to the commission to the European Council, the emphasis has been on waiting and seeing if the Greek government of George Papandreou can live up to its promises of savage spending cuts and structural reforms in order to dig its way out of the debt.
“There’s a significant risk the Greek crisis will hijack the summit,” said a diplomat. “People are getting worried about the spill-over effect in Spain and Portugal and about the social impact, of unrest on the streets.”
The meeting is an extraordinary summit convened by the EU’s new council President, Herman Van Rompuy, of Belgium, to canvass views from European government chiefs on medium-term policies aimed at shoring up the “European way of life” in an era of low growth.
Van Rompuy’s letter of invitation to the 27 government leaders makes no mention of Greece or the single currency and makes only minimal reference to the crisis. “The purpose of this meeting is primarily to discuss the direction of our economic policies for the years to come. This is even more important in the light of recent developments inside and outside the eurozone,” wrote Mr. Van Rompuy.
But Jose Manuel Barroso, President of the European commission, which was endorsed on Tuesday for a five-year term by the European Parliament, told MEPs in Strasbourg that as well as signalling to the markets that the single currency is safe it would be robustly defended if need be.
“Our common currency, the euro, will continue to constitute a major tool for our development and those who think it can be put in question must realise we will stick to our course,” he said.
“The European Union has the necessary framework to address any challenge.”
Short of an IMF-style bailout coupled with stringent lending terms, though, it is not entirely clear what the EU’s “necessary framework” amounts to since the eurozone is in terra incognita, never having had to come to the rescue of a single currency country at risk of default.
Analysts and economists warned of complacency and confusion, with the sharks in the markets smelling blood and upping their attacks on the euro.
“It’s a crisis that develops at the pace of the markets, not at the pace of official meetings. There is a risk of being behind the curve,” said Jean Pisani-Ferry, director of Bruegel, the Brussels economics think-tank. “Policymakers need to be clear about the endgame and make sure the markets grasp what is the endgame. If you get behind the curve, you lose credibility. To avoid this you have at some point to take the initiative and risks.”
A commission official said leaders would want to discuss the woes of the single currency, but only to a degree. “They won’t want to be having a fireside chat while the house is burning down. But they’ll be keen not to turn this into a summit on Greece, Spain, and Portugal. It’s not the main focus.” — © Guardian Newspapers Limited, 2010