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EU promises Greek solidarity, but no hard cash yet

12. February 2010. | 08:37

Source: EUbusiness.com

European leaders pledged solidarity Thursday with debt-stricken Greece and "determined" measures to defend the eurozone but stopped short of offering an immediate injection of hard cash.

European leaders pledged solidarity Thursday with debt-stricken Greece and "determined" measures to defend the eurozone but stopped short of offering an immediate injection of hard cash.

"Euro area member states will take determined and coordinated action if needed to safeguard the financial stability in the euro area as a whole," the 27 European Union heads of state and government said in the agreed text.

Markets had been anticipating strong signals to avert growing fears that the debt contagion could hit the entire euro area, but the news was met with "a measure of indifference," according to Patrick O'Hare at Briefing.com.

"At this juncture, we are not sure if the indifference is because the news was already factored in the market or whether the indifference is due to the market being left to hang by the EU," he added.

Both the euro and European stock markets were weaker in late-day trade on Thursday following release of the statement.

EU President Herman Van Rompuy, chairing his first EU summit, announced the "deal" after two hours of intense negotiations in Brussels that had centred on German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou.

Van Rompuy stressed that the stance, backed by all EU nations, involves Greece doing "whatever is necessary, including additional measures" to meet targets agreed with the European Commission, which polices EU countries' budgets.

Under the agreement, Greece has to reduce its public deficit this year by four percentage points from the current 12.7 percent, which is more than four times the limit laid down by Brussels.

The European Central Bank will "draw on the expertise of the International Monetary Fund" during monitoring of Greek cutbacks, Van Rompuy added.

Papandreou had appealed for "psychological" and "political" support from his European partners in a French newspaper interview.

And Van Rompuy underlined that "the Greek government has not requested any financial support."

But the leaders' vow of solidarity left the door open for Germany and others to expand preparatory work exploring whether loans or guarantees could be offered bilaterally to Greece or other countries should national troubles threaten the eurozone.

Merkel said that the bloc, and particularly its inner 16-country eurozone, was "not going to leave Greece on its own" to handle its deficit crisis.

"But rules are rules and the rules must also be respected," she underlined.

Prime Minister Gordon Brown of Britain, which has promoted an IMF bailout solution, said the Greek crisis "is up to the euro area" to sort out itself.

The talks also included central bank chief Jean-Claude Trichet and EU commission chief Jose Manuel Barroso, who called on all nations to control their own finances to ensure the continent's financial stability.

Concrete details concerning what financial backing could ultimately become available is unlikely before Monday when finance ministers from the euro countries meet in Brussels.

Among options being considered in Brussels are bilateral loans to Greece from some eurozone countries, the creation of credit lines or government guarantees to underwrite Greek bond issues.

Spain and Portugal are foremost among other eurozone nations carrying a massive public deficit.

"All European nations are facing budgetary problems and it isn't easy to justify, according to public opinion, that they must help Greece out," a European governmental source underlined.

Greece has been under increasing pressure from financial markets due to the size of its deficit and debts, swollen by the global economic crisis.

A public debt estimated at about 300 billion euros has seen borrowing costs for Athens driven off the scale, fuelling fears of a payment default and a eurozone domino effect.

The problem has also sent the euro sliding against the dollar over recent months


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08. February - 14. February 2010.