EU to get to grips with Greece rescue plans
European Union leaders will lay the groundwork for a financial rescue of Greece at a summit on Thursday, but any support is likely to require a big commitment from Athens on getting its economy in order.
Germany and possibly France are expected to take the lead in any aid package the EU draws up to help Greece weather its mounting debt and deficit crisis, although the structure, size, nature and any conditions attached to a deal remain unclear.
“We have to help Greece, and Europe will do it as well as the Eurogroup,” Spanish Prime Minister Jose Luis Zapatero said on Wednesday, referring to a meeting of EU finance ministers on Monday, when details of any plan are likely to be decided.
Greece’s debt problems are not officially on the agenda for Thursday’s one-day summit, but they will be discussed by leaders over lunch with the president of the European Central Bank, Jean-Claude Trichet, and a statement is expected afterwards.
The meeting among the EU’s 27 leaders, economic advisers, the central bank chief and other senior EU officials is expected to reach a political agreement on helping Greece, while the financial details will be hammered out at Monday’s meeting of finance ministers in Brussels, a senior EU source told Reuters.
“You have to consider the sequencing of the whole political process — the summits are there to define the political direction while the details are worked out at the Eurogroup,” the source said.
Jean-Claude Juncker, the chairman of finance ministers from the 16 EU countries that use the euro single currency, held a videoconference with them to discuss rescue proposals on Wednesday and told a Luxembourg newspaper that those plans would be laid out to leaders at Thursday’s summit.
A French diplomatic source said Eurogroup finance ministers had discussed aid for Greece but not come to any agreement. The source told journalists in Paris that France was working with Germany on a joint declaration of political support for Athens.
Thursday’s summit, called in January by Herman Van Rompuy, the president of the EU, has become a major focus for financial markets, with Greece facing the threat of a debt default and the EU uncertain about how much or whether to help.
With Athens needing to borrow around 53 billion euros ($75 billion) this year to cover its deficit and refinance debts, default would have far-reaching repercussions for the euro.
Yields on Greek debt have soared over the past month — though they have fallen in recent days as the possibility of EU support has increased — while concerns persist that Greece’s problems could spill over to Portugal and Spain.
Greek Prime Minister George Papandreou held talks in Paris on Wednesday but said afterwards that he had not asked French President Nicolas Sarkozy for help, although he said Sarkozy had expressed support Greece’s efforts to tackle the crisis.
His office said he held calls with other European leaders and would hold a news conference after Thursday’s summit.
Germany and France look likely to play a key role in any plan to help Athens, although it remains unclear under EU laws how a member of the euro zone can be bailed out. It would be the first such financial package put together in the common currency’s 11-year history.
German Chancellor Angela Merkel and France’s Sarkozy are to hold a news conference in Brussels after Thursday’s summit, potentially shedding more light on the details of any effort to secure Greece’s financial future.
One possibility would be for Germany, via a state-owned bank, to buy Greek government bonds, ensuring that its short-term debt requirements are financed, a German member of the European Parliament told Reuters on Wednesday.
Alternatively, direct budget support might be provided via the early release of EU structural funds or some similar mechanism, but it would probably have to be conditional on Greece making deep, IMF-style structural adjustments.
That in turn could provoke further social unrest in Greece, where unemployment is near 20 percent and unions are threatening mass strikes that could damage the Socialist-led government.
Greece is sitting on debts that are expected to hit 290 billion euros this year. The cost of servicing that debt has risen as bond markets have punished Greece for its financial profligacy, pushing yields higher.
At the same time, Athens has a budget deficit of 12.7 percent of gross domestic product, more than four times the EU limit. Further denting confidence is the fact the EU regards Greek statistics as unreliable.
The start of Thursday’s meeting was pushed back to 1100 GMT from 0930 GMT due to adverse weather, a spokeswoman for Spanish EU presidency said.