EUROPE VOWS TO SAVE GREECE
12 febrero 2010
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Published by The Wall Street Journal, US
Brussels-European leaders said they wouldn't let Greece succumb to its credit crisis, in an unprecedented pledge of support that could push the 16 countries that share the euro currency closer to collective responsibility for their budgets and debts.
Countries belonging to the euro "will take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole," leaders of the European Union declared at a summit in Brussels on Thursday, after discussing Greece's budget crisis.
It was a watershed acknowledgment that the fiscal problems of one euro-zone country have now become the problems of all. That's a historic step for Europe in its 11-year-old experiment with a common currency. Until now, member countries had fiercely defended their sovereignty over taxes and spending, even though they share the euro and a common central bank.
EU officials stopped short of outlining how any bailout would work, however, disappointing many investors who had been looking for concrete details.
Markets reacted in mixed fashion. The euro fell sharply on worries about the lack of a detailed rescue package.
However, Greek government bonds, which are at the center of the tumult, rallied to their best levels since mid-January, a sign that investors were more confident about Athens's ability to service its debt. U.S. markets rose, with the Dow Jones Industrial Average closing up 1.1% at 10144.19, buoyed by the news on Greece and positive economic developments in China and the U.S.
U.S. relief may be short-lived as it sinks in that the EU summit didn't really solve the fundamental issue of how the euro zone will support its troubled weaker members, some analysts said.
Euro zone officials had initially hoped to keep Greece off the agenda of their summit. But they were forced to act by worsening market turmoil and worries Athens's problems could spill over to other countries.
The vague words reflect a tricky balance: EU leaders must persuade spooked investors that bigger, stronger euro-zone countries led by Germany and France won't let a troubled member fail. Letting Greece or other weaklings default could trigger the fraying of the euro currency. But at the same time Berlin and Paris must avoid lessening pressure on Athens to make tough budget reforms at home.
The Greek debt crisis shows the need for greater coordination of economic policies and a stronger hand in policing renegade states, said Jean-Pierre Jouyet, head of France's stock-market regulator and Mr. Sarkozy's former state secretary for European affairs.
"There's a hole in the structure" of Europe's monetary union, Mr. Jouyet said. Because the euro zone doesn't have the proper tools to bail out fellow states, he said, it should work together with the Washington-based International Monetary Fund.
Previous French calls for a more centralized "economic government" of the euro zone have met with resistance elsewhere. Most European governments are reluctant to lose control over their tax and spending policies.
Greece's struggle to rein in its exploding debt has fed worries that the country might default. That spurred rising concern about unsustainable debts in other euro-zone countries, including Portugal, Spain, Ireland and Italy. Policy makers fear such a domino effect could destabilize the euro and rock the European and global economy.
Thursday's public show of support amounted to a tacit admission the currency bloc needs to address what critics have long seen as its essential weakness: the absence of coordinated fiscal policies. Under the current system, the European Central Bank has the power to set monetary policy for the entire 16-nation euro zone. But it has little influence over individual members' fiscal policies.
Public skepticism over a bailout abounds in Germany and other healthier euro-zone countries. Bowing to that sentiment, the EU statement paired a promise of support for Greece with demands for "additional measures" if efforts by Athens to repair its budget fail to convince markets.
Greece won't get "money for free," and would first have to satisfy other European governments that it has done all it can, said Luxembourg Prime Minister Jean-Claude Juncker. If even extra measures don't pacify financial markets, then euro-zone governments will help Greece out, Mr. Juncker said.
Such statements effectively run counter to EU treaty clauses restricting bailouts of euro member countries, and show how the global financial crisis is pushing reluctant European governments toward deeper economic and political integration.
Yet greater coordination of economic policy will necessarily happen, says Charles Grant, director of the Centre for European Reform, a London think tank. "There will be for Greece and possibly Spain a loss of fiscal sovereignty—a two-tier Europe with the weaker countries having to accept outside tutelage" from sounder euro members as the price of financial support.
Germany and France, the two biggest economies in the 16-nation euro zone and the wider, 27-country EU, remain deeply unenthusiastic about financing the public debts of Greece or other struggling euro members. Politicians in Berlin and Paris fear aid would anger their own taxpayers, while letting profligate Greece off the hook.
Those concerns meant German Chancellor Angela Merkel and French President Sarkozy didn't make Greece a concrete offer of aid on Thursday, German officials said.
Thursday's EU statement was "clear" and "sufficiently precise" to address Greece's present situation, Mr. Sarkozy said at a joint news conference with Ms. Merkel after the summit. "If something else comes up, we'll reconvene," Mr. Sarkozy said.
European officials are considering mechanisms including bilateral credits or debt guarantees, according to people familiar with the matter. "Leaders are yet to decide the precise measures to help the Greek economy," Mr. Juncker said.
Greek Prime Minister George Papandreou told his colleagues at the summit that Greece doesn't need aid, officials who took part said. "We will not be needing any help," Mr. Papandreou told reporters.
Greek officials stress that they don't need to tap bond markets again until late April, when an outstanding bond matures. By then, Greece hopes to show investors that steps to slash spending and raise tax revenues are under way.
Tiny Greece makes up less than 3% of the euro zone's $12 trillion economy.
But the country has become a test case for whether Europe's monetary union can enforce fiscal rectitude in its members. Greece has consistently violated EU rules limiting budget deficits to 3% of gross domestic product and sown doubts about the honesty of its public accounts.
Greece's newly elected Socialist government said late last year that the current deficit, at nearly 13% of GDP, is far larger than the previous government admitted. That has led to a financial-market run on Greece in recent weeks, pushing up the cost of insuring against a Greek bond default to record levels.
Thursday's verbal support for Greece by euro-zone leaders was probably too vague to end the market jitters, analysts said.
The promise of euro-zone support shows most EU leaders are reluctant to let the International Monetary Fund help Greece, other than with advice. Many EU officials believe turning to the IMF would be an embarrassing sign of weakness.
Mr. Juncker described a possible IMF intervention as an "intrusion," saying: "We have all the instruments to take care of our own affairs."
Brussels-European leaders said they wouldn't let Greece succumb to its credit crisis, in an unprecedented pledge of support that could push the 16 countries that share the euro currency closer to collective responsibility for their budgets and debts.
Countries belonging to the euro "will take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole," leaders of the European Union declared at a summit in Brussels on Thursday, after discussing Greece's budget crisis.
It was a watershed acknowledgment that the fiscal problems of one euro-zone country have now become the problems of all. That's a historic step for Europe in its 11-year-old experiment with a common currency. Until now, member countries had fiercely defended their sovereignty over taxes and spending, even though they share the euro and a common central bank.
EU officials stopped short of outlining how any bailout would work, however, disappointing many investors who had been looking for concrete details.
Markets reacted in mixed fashion. The euro fell sharply on worries about the lack of a detailed rescue package.
However, Greek government bonds, which are at the center of the tumult, rallied to their best levels since mid-January, a sign that investors were more confident about Athens's ability to service its debt. U.S. markets rose, with the Dow Jones Industrial Average closing up 1.1% at 10144.19, buoyed by the news on Greece and positive economic developments in China and the U.S.
U.S. relief may be short-lived as it sinks in that the EU summit didn't really solve the fundamental issue of how the euro zone will support its troubled weaker members, some analysts said.
Euro zone officials had initially hoped to keep Greece off the agenda of their summit. But they were forced to act by worsening market turmoil and worries Athens's problems could spill over to other countries.
The vague words reflect a tricky balance: EU leaders must persuade spooked investors that bigger, stronger euro-zone countries led by Germany and France won't let a troubled member fail. Letting Greece or other weaklings default could trigger the fraying of the euro currency. But at the same time Berlin and Paris must avoid lessening pressure on Athens to make tough budget reforms at home.
The Greek debt crisis shows the need for greater coordination of economic policies and a stronger hand in policing renegade states, said Jean-Pierre Jouyet, head of France's stock-market regulator and Mr. Sarkozy's former state secretary for European affairs.
"There's a hole in the structure" of Europe's monetary union, Mr. Jouyet said. Because the euro zone doesn't have the proper tools to bail out fellow states, he said, it should work together with the Washington-based International Monetary Fund.
Previous French calls for a more centralized "economic government" of the euro zone have met with resistance elsewhere. Most European governments are reluctant to lose control over their tax and spending policies.
Greece's struggle to rein in its exploding debt has fed worries that the country might default. That spurred rising concern about unsustainable debts in other euro-zone countries, including Portugal, Spain, Ireland and Italy. Policy makers fear such a domino effect could destabilize the euro and rock the European and global economy.
Thursday's public show of support amounted to a tacit admission the currency bloc needs to address what critics have long seen as its essential weakness: the absence of coordinated fiscal policies. Under the current system, the European Central Bank has the power to set monetary policy for the entire 16-nation euro zone. But it has little influence over individual members' fiscal policies.
Public skepticism over a bailout abounds in Germany and other healthier euro-zone countries. Bowing to that sentiment, the EU statement paired a promise of support for Greece with demands for "additional measures" if efforts by Athens to repair its budget fail to convince markets.
Greece won't get "money for free," and would first have to satisfy other European governments that it has done all it can, said Luxembourg Prime Minister Jean-Claude Juncker. If even extra measures don't pacify financial markets, then euro-zone governments will help Greece out, Mr. Juncker said.
Such statements effectively run counter to EU treaty clauses restricting bailouts of euro member countries, and show how the global financial crisis is pushing reluctant European governments toward deeper economic and political integration.
Yet greater coordination of economic policy will necessarily happen, says Charles Grant, director of the Centre for European Reform, a London think tank. "There will be for Greece and possibly Spain a loss of fiscal sovereignty—a two-tier Europe with the weaker countries having to accept outside tutelage" from sounder euro members as the price of financial support.
Germany and France, the two biggest economies in the 16-nation euro zone and the wider, 27-country EU, remain deeply unenthusiastic about financing the public debts of Greece or other struggling euro members. Politicians in Berlin and Paris fear aid would anger their own taxpayers, while letting profligate Greece off the hook.
Those concerns meant German Chancellor Angela Merkel and French President Sarkozy didn't make Greece a concrete offer of aid on Thursday, German officials said.
Thursday's EU statement was "clear" and "sufficiently precise" to address Greece's present situation, Mr. Sarkozy said at a joint news conference with Ms. Merkel after the summit. "If something else comes up, we'll reconvene," Mr. Sarkozy said.
European officials are considering mechanisms including bilateral credits or debt guarantees, according to people familiar with the matter. "Leaders are yet to decide the precise measures to help the Greek economy," Mr. Juncker said.
Greek Prime Minister George Papandreou told his colleagues at the summit that Greece doesn't need aid, officials who took part said. "We will not be needing any help," Mr. Papandreou told reporters.
Greek officials stress that they don't need to tap bond markets again until late April, when an outstanding bond matures. By then, Greece hopes to show investors that steps to slash spending and raise tax revenues are under way.
Tiny Greece makes up less than 3% of the euro zone's $12 trillion economy.
But the country has become a test case for whether Europe's monetary union can enforce fiscal rectitude in its members. Greece has consistently violated EU rules limiting budget deficits to 3% of gross domestic product and sown doubts about the honesty of its public accounts.
Greece's newly elected Socialist government said late last year that the current deficit, at nearly 13% of GDP, is far larger than the previous government admitted. That has led to a financial-market run on Greece in recent weeks, pushing up the cost of insuring against a Greek bond default to record levels.
Thursday's verbal support for Greece by euro-zone leaders was probably too vague to end the market jitters, analysts said.
The promise of euro-zone support shows most EU leaders are reluctant to let the International Monetary Fund help Greece, other than with advice. Many EU officials believe turning to the IMF would be an embarrassing sign of weakness.
Mr. Juncker described a possible IMF intervention as an "intrusion," saying: "We have all the instruments to take care of our own affairs."
