- The Washington Times - Friday, February 12, 2010

Europe’s top leaders huddled Thursday to formulate a response to the Greek debt crisis, which threatens to undermine the region’s already battered markets, but released only a vague statement pledging help “if needed.”

The leaders pledged to provide “determined and coordinated action if needed to safeguard stability in the euro area as a whole,” newly appointed European Union President Herman Van Rompuy told reporters after the Brussels summit.

The European Council, the executive of the European Union under whose umbrella the meeting took place, gave no details. It has another meeting scheduled for Monday.

Meanwhile, proof that the markets do not yet accept the idea that a remedy has been found was in the continued fall of the euro even against the embattled U.S. dollar.

As European markets closed Thursday, the euro had fallen by 1 percent against the dollar from the peak of the day to trade at $1.3645. Since early December the euro has declined by about 10 percent against the dollar, which has been weak versus the yen and other currencies.

Mr. Van Rompuy emphasized that eurozone leaders would demand that Greece “implement in a rigorous and determined manner” its austerity plan, whose goal is to eliminate Greece’s budget deficit by 2012.

“We are ready to take any necessary measure in order to make sure that the goal of cutting our deficit by four percent in 2010 to 8.7 percent of our GDP” is achieved, Greek Prime Minster George Papandreou said Wednesday in Paris after meeting with French President Nicolas Sarkozy.

But on Thursday Greece’s economic and financial problems worsened as the government reported that the unemployment rate jumped to a five-year high of 10.6 percent in November, up 0.8 percentage point from October.

Many observers saw this crisis as the inevitable result of 16 members of the European Union with Britain steadfastly staying out forming the eurozone. The members would have a common currency and central bank but each country makes its own fiscal and economic policy.

Opposition to a Greek bailout within the German government, which it is assumed would ultimately carry the greater part of the burden, is strong. German conservative political circles are skeptical that Athens’ Socialist government would or could trim its sails, leaving little but bad choices.

“There are two other options: to exclude Greece and possibly other countries such as Spain and Portugal from the eurozone,” the German conservative newspaper Die Welt wrote, “or to accept the humiliation to call on the bailout specialists of the International Fund in Washington. Both alternatives remain on the table both in Berlin and Brussels but [both] are deemed unacceptable.”

Germany also fears that Greece is only the first member of the eurozone with severe economic problems that would eventually need a bailout Portugal, Spain, and Ireland are often mentioned.

Bailouts of these larger European economies could dwarf one of Greece, whose economy contributes less than 3 percent of eurozone bloc’s $13 trillion economy.

Spain’s economy, for example, is more than four times the size of Greece’s, and its unemployment rate, 19.5 percent, is the highest in Europe. Spain’s budget deficit last year, 11.4 percent of gross domestic product, wasn’t much different from Greece’s 12.7 percent.

Portugal, with a minority government and a parliamentary opposition opposed to austerity, has an even more complicated political problem. Ireland, whose banks were gutted in the early stages of the worldwide financial crisis, is struggling with a similar situation.

The challenges confronting Greece are massive. Its budget deficit ballooned to 12.7 percent of GDP last year, the biggest fiscal gap in the eurozone and more than four times the 3 percent limit prescribed by the eurozone’s “growth and stability pact.”

This year Greece officially has committed itself to cutting its deficit by 4 percentage points of GDP, in part by freezing salaries of public workers, reducing their bonuses, raising taxes on fuel, tobacco and alcohol, and aggressively pursuing the country’s notorious tax evaders.

Its medium-term program includes raising the retirement age by two years to 63 by 2015.

On Wednesday, schoolteachers, doctors, tax officials, air traffic controllers and other public workers staged a one-day strike to protest the government’s plans.

On Thursday, taxi drivers went on strike, protesting a proposed increase of nearly 75 cents a gallon in the fuel tax and orders requiring them to install receipt-issuing machines.

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