31 January 2012

Bloomberg: EU nears confrontation over Greek rescue

Euro leaders left a Brussels summit late yesterday with no accord over how to plug Greece’s widening budget hole and German Chancellor Angela Merkel voicing frustration with the Athens government’s failure to carry out an economic makeover. “Greece’s debt sustainability is especially bad”, Merkel told reporters. “You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.”

Bargaining with Greece over a debt writedown and its economic management overshadowed efforts to point the way out of the financial crisis. EU chiefs agreed to speed the setup of a full-time €500 billion rescue fund and signed off on a German-inspired deficit-control treaty. The summit was the 16th in the two years since the Greek debt emergency provoked a Europe-wide drama, leading to unprecedented aid packages for Greece, Ireland and Portugal, and shattering European faith that the common currency was indestructible.

After the gathering of European leaders, EU President Herman Van Rompuy convened a smaller group, including Greek Prime Minister Lucas Papademos and European Central Bank Executive Board member Joerg Asmussen, to weigh the next steps on Greece.

Greece’s feuding political parties face pressure to deliver more savings and to verify in writing that the austerity programme will be carried out, no matter who wins elections to replace Papademos’s interim Cabinet. “Greece is a sovereign nation and must enact the promises it’s made”, said French President Nicolas Sarkozy. “Surveillance of Greece’s progress is normal, but there was never any question of putting Greece under guardianship.”

Portugal’s debt has been judged “perfectly sustainable” by the EU and International Monetary Fund, Prime Minister Pedro Passos Coelho said. Asked if there is a risk of writedowns on Portuguese bonds, he said: “No, there is not”. The Greek standoff and Portugal’s tottering market punctured the start-of-year crisis respite that had been nourished by €489 billion in three-year loans infused by the ECB into the banking system.

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