European Union leaders to make statement Thursday on Greece’s debt crisis
BRUSSELS – Wealthy European nations were moving closer toward swallowing a bitter pill Tuesday: rescuing Greece from its overspending before its debts drag down the euro and stock markets all the way to Wall Street.
Stocks in the U.S. and Europe rose on expectations of some kind of decisive action to prevent a Greek debt default that could spread to other countries, undermining Europe’s hesitant economic recovery.
European Union leaders will issue a statement on Greece’s debt crisis during a Thursday meeting, officials said Tuesday – without giving details of what it would say. Markets reacted well to news that European Central Bank’s president Jean-Claude Trichet would make a rare appearance at the summit in Brussels – which they saw as confirmation that some kind of help would be discussed.
The crisis has exposed the EU’s Achilles’ heel – states remain independent to spend as they wish, but their decisions can affect all 16 eurozone nations. Countries that help Greece risk having their own borrowing costs rise as a result, and could see other struggling eurozone economies get in line for aid.
Bernard Valero, a spokesman for France’s foreign minister, said Tuesday that “we must help” Greece. “It’s about helping a friend … we are the European family.” He did not give any details of that help.
European stocks inched up on Tuesday, and the euro rose by three-quarters of a cent to $1.3725, down from $1.51 in December. The Greek stock market rose by 4.5 percent.
An unprecedented bailout for a euro member would be a blow to the monetary union by showing that the framework set up to support it is insufficient to ward off a crisis. Greece’s budget deficit stood at 12.7 percent of its gross domestic product in 2009, more than four times the EU’s 3 percent limit. The country’s public debt has exceeded 113 percent of GDP.
Other countries also have run afoul of the limits, despite EU warnings and scoldings.
Continued market skepticism about government finances means Greece and other troubled countries – such as Portugal, Spain and Ireland – are already paying higher interest rates. That could force them to intensify austerity measures – less spending and more taxes – that could cut wages, particularly in the public sector, and reduce or eliminate any economy stimulus for flagging growth.
Greece on Tuesday tried to appease EU partners and markets by unveiling sweeping proposals to increase retirement ages, hike taxes on the powerful and wealthy Orthodox Church and force street vendors to issue receipts. Greek Prime Minister George Papandreou visits Paris today for talks with French President Nicolas Sarkozy on the debt situation.
EU governments could agree to underwrite Greece’s debt jointly – but this could hike the cost of their own borrowings.
They could also provide a loan to Greece – but it is uncertain that they could or would provide enough to give Greece long-term relief.
Another option would be bonds, issued jointly by European governments to raise money from markets.
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