- The Washington Times - Thursday, February 11, 2010

BRUSSELS — European Union leaders on Thursday offered Greece moral support but no money to help it weather a debt crisis — vague assurances that didn’t calm the market fear that has shaken the EU and undermined the shared euro currency.

The 16 countries that use the euro said only that they “will take determined and coordinated action, if needed, to safeguard financial stability in the euro as a whole.”

But no money or loan guarantees were put on the table in the statement from a summit meeting in Brussels. The EU leaders urged finance ministers to look at Greece’s debt situation when they meet Monday and Tuesday, but gave no specific recommendations.

Markets appeared disappointed at not seeing a concrete backstop to ward off a potential default by Greece, which needs to borrow 54 billion euros this year to cover its outsize budget deficit.

RELATED STORY: Civil servant strike in Greece shuts schools, grounds flights

The Greek crisis is the leading edge of the debt troubles that have hit governments in the developed world during the world’s three years of economic turbulence, as they run up deficits bailing out banks and stimulating their economies.

A default would be a serious blow to Europe’s monetary union, and fears that Athens might not be able to pay its debts already have led markets demanding higher borrowing costs for Greece.

There are also concerns that the contagion could spread to other financially wobbly countries, such as Portugal and Spain, and that other governments will have to pay more to borrow.

The leaders said Greece had not requested financial support and called on Athens to push through “in a rigorous and determined manner” its budget cuts, which already have triggered protests and strikes — and to prepare bigger cuts if needed.

Neil Mackinnon, global macro strategist at VTB Capital said, “it just looks like a pledge of solidarity, but no actual details of a program, which is why the euro is still in the doldrums.”

“They have to stop this right now … they are firefighting at the moment, but they need to put out this fire right now,” said Neil Mellor, currency strategist at Bank of New York Mellon. “It won’t appease those looking for a bona fide rescue plan.”

The euro fell to $1.3635, having been as high as $1.38 earlier in the day on hopes of more substantive Greek bailout news. It traded at $1.51 in December. German and French stocks were down, while shares in Britain, which doesn’t use the euro, were flat.

Markets see Greece at risk of defaulting on its massive borrowings because it faces several years of sluggish growth and mounting debt that current austerity plans may not be able to stem.

Those fiscal problems also have exposed the vulnerability of Europe’s monetary union in times of crisis. Euro member countries agree to limit their budget deficits to 3 percent of gross domestic output because overspending can undermine their shared currency. But those deficit rules have been broken repeatedly and have not been prevented Greece and other countries from trouble.

The leaders may make more comments on Greece later in the day.

Luxembourg government spokesman Guy Schuller said no firm bailout figures are on the table at this point, but many options are under discussion. “Paris and Berlin are at the head” of efforts that would be shared by all 16 eurozone nations, he said.

Among possibilities for Greece that have been floated in recent days are EU member countries guaranteeing Greece’s debt, a special credit line for the Greek government, and bilateral loans.

But German Chancellor Angela Merkel talked down a full financial bailout, but said other European governments would not leave Greece in the lurch.

“We won’t let Greece be alone but there are rules and they have to be respected and based on that we’ll issue a statement and an explanation,” she said.

Greece needs to borrow 54 billion euros (nearly $75 billion) from bond markets this year to plug its budget gap. So far it has been able to borrow from markets but is facing increasing interest costs as markets price in higher risk of a possible default.

Greek Prime Minister George Papandreou has promised to reduce Greece’s deficit to 8.7 percent of gross domestic product this year, from 12.7 percent last year, the highest in the EU and four times above the EU limit.

But markets doubt Greece’s credibility after it admitted falsifying statistics for years to make the deficit look smaller. They also worry that Greece can’t carry out any cuts because it risks social unrest.

Greek workers shut down schools, grounded flights and walked out of hospitals Wednesday to protest austerity measures, and a much broader strike is planned for Feb. 24.

Associated Press writers Pan Pylas, Angela Charlton and Leslie Patton in Brussels contributed to this report.

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