BRUSSELS – European Union leaders faced down markets Thursday with a statement of support for Greece – but offered no detailed bailout for a debt crisis that has plunged the euro into its deepest crisis since it was launched 11 years ago.
The 16 countries that use the euro promised to “take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole.”
But they left out any detail about what they might do to prevent the country from defaulting on its massive debt.
Markets reacted coolly to the vague promise of help. Analysts warned that worries over a Greek default have not gone away, despite assurances from the Greek government that it will do whatever it takes to reduce a massive budget deficit.
A Greek default would be a serious blow to Europe’s monetary union and undermine the whole idea of a common currency, vulnerable because it is used by countries with different fiscal policies.
EU nations are reluctant to put money on the table for Greece, believing that this would let the country off the hook for years of economic mismanagement and faked statistics – and might encourage overspending by others who they think they too will be bailed out.
The euro continued its slide, dropping around 1.5 U.S. cents over the day as hopes of immediate financial assistance faded. By early evening the euro was trading at $1.3630, near nine-month lows. It was $1.51 in late November.
But the bond market reacted well, with fears of default continuing to recede. The spread, or difference between 10-year Greek bonds and a German benchmark, stood at 2.71 percentage points by late afternoon on Thursday, well below the 2.83 points seen overnight and 3.50 points last week.
Neil MacKinnon of VTB Capital said it is “inevitable, given the seriousness of the eurozone debt crisis, that the endgame is some sort of bailout. Otherwise risk of default or even breakup of the monetary union becomes a real possibility.”