- The Washington Times - Wednesday, March 24, 2010

BRUSSELS (AP) — The sinking euro and a downgrade of Portugal’s debt put renewed pressure on European leaders Wednesday to come up with a bailout plan for Greece and stem the government debt crisis undermining their shared currency.

But agreement remained elusive as a Thursday summit approached. Markets increasingly expect any bailout for Greece to involve the International Monetary Fund — and EU governments are discussing whether they would permit that and add financial help from eurozone nations.

Germany is holding back a deal, reluctant to put taxpayer money on the line for Greece, but failure to help an indebted eurozone country would be an admission that Europe can’t halt the crisis in its currency union.

The latest vote of no confidence in vulnerable eurozone economies came with Fitch Ratings’ downgrade Wednesday of Portugal’s debt. The credit ratings agency said Portugal’s prospects for recovery were weaker than others in the eurozone and it faces problems shrinking its budget deficit.

The euro hit a 10-month low against the U.S. dollar on Wednesday on the Portuguese downgrades and the uncertainty over Europe’s dithering over Greece, which says it will need eurozone or IMF help if markets keep charging it painfully high costs to borrow.

Greece’s debt crisis has undermined the euro by showing that the rules supporting it have not prevented governments from overspending, hitting public accounts. Athens’ woes are also putting pressure on other eurozone countries with troubled finances, such as Portugal and Spain.

European diplomats speaking on condition of anonymity said Spanish Prime Minister Jose Luis Rodriguez Zapatero is heading efforts to get the 16 eurozone nations to meet separately Thursday on the crisis surrounding Greece, in addition to the meeting by all 27 EU member governments.

“He is pushing hard for this, and we think it is going to happen,” a diplomat said.

Eurozone leaders have met only once before for a summit, at the height of the banking crisis in 2008.

EU President Herman Van Rompuy also is asking for a eurozone summit, another EU official said. Mr. Van Rompuy met with French President Nicolas Sarkozy in Paris on Wednesday, Mr. Sarkozy’s office said.

However, Germany is not keen, with a senior government official in Berlin saying, “For us, there is no decision at this summit on aid to Greece.”

He said aid “comes into question only as a last resort” when Greece has exhausted all efforts to raise money from bond markets.

The German government wants the IMF to be “significantly involved” in any bailout because it believes that it could face a legal challenge from the country’s powerful Federal Constitutional Court unless it can prove that any European or German aid is the last option left to Greece.

European Commission President Jose Manuel Barroso said EU leaders were facing a test of their commitment to the currency union and should set up “a safety net to be used only in case all other means to avoid the crisis have been exhausted.”

“What is at stake is the essential principle of financial stability that is at the center of the euro, and the euro is the most important creation of the European project,” he told the European Parliament.

He hinted that IMF help would be acceptable but said it needs to be with the EU’s blessing “embedded into a giant European framework.”

Greek government spokesman George Petalotis also said Greece was waiting for a detailed EU plan that would “exert influence in such a way that our country can borrow, when it requires money.”

He stressed that Greece was “not seeking financial help from anyone” but needed an option to avoid crippling interest rates that are undermining Greek efforts to shave billions of euros from its budget this year.

The countries that use the euro pledged last month to help Greece if the stability of the currency zone were threatened — but agreed no details. Germany says it doesn’t need to fulfill that promise yet, especially not to save Greece from years of overspending and faking its budget numbers.

German Chancellor Angela Merkel saw no reason to move quickly, saying Sunday that EU leaders shouldn’t discuss a potential bailout at the two-day summit starting Thursday because Greece is not yet asking for help and is not on the verge of bankruptcy.

Mrs. Merkel also is pressing for tough new rules to restrain deficit spending by eurozone members to prevent future debt crises.

German Economy Minister Rainer Bruederle repeated that position Wednesday, telling the daily Passauer Neue Presse that “aid for Greece would be the wrong signal. We must not create a precedent that other eurozone countries can refer to in the future.

“It cannot be possible that German taxpayers have to pick up the bill for mismanagement in Greece and elsewhere,” he said.

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