EU divided over Greek rescue deal
The Age
Friday February 12, 2010
LEADERS of Europe's 27-nation union are set to pledge support for a multibillion-euro rescue of the Greek economy in an 11th-hour bid to halt the spread of the debt crisis and safeguard the euro from further damage.Over the past few days there has been ferocious disagreement on how to pull Greece from the brink of failure with some countries, including the Netherlands, pushing for an intervention from the International Monetary Fund.Others, led by German Chancellor Angela Merkel, have opposed this, arguing that tough, belt-tightening measures should be imposed on Greece and that the EU nations, led by France and Germany, should push the Greek government to meet the reform demands.German and French finance ministers and officials have been working overtime to find a compromise.A summit of leaders from the biggest national economies in the euro zone are scheduled to meet in Brussels overnight under the leadership of the new European Council President, Herman Van Rompuy.Another plan under discussion raises the possibility of establishing a European Monetary Fund, which would take the place of the Washington-based IMF and avoid perceptions of going cap-in-hand to the US.Under the most likely scenario, Germany and France will come to the rescue and provide a guarantee to keep Greece solvent, a move seen as the less damaging option as all nations scramble to shore up the euro against further raids from financial market gamblers.According to London financial newspapers, however, there are big fears about market reaction to such a move, as it fails to address the need for economic reforms to safeguard against a repeat of the Greek crisis.The European Central Bank, which regulates the euro, and the European Commission have so far reacted positively to the Greek government's pledge to slash the 12.7 per cent budget deficit by close to 4 per cent in just two years.However, market confidence has not reacted so positively, prompting the European Commission President, Jose Manuel Barroso, to outline what punishments the EU can use if Greece misses deadlines or targets. For example, Greece could lose EU infrastructure subsidies.According to The Times of London, French President Nicolas Sarkozy outlined the Franco-German proposal after meeting Greek Prime Minister George Papandreou on Wednesday. After the meeting in Paris, Mr Papandreou tried to reassure the EU, insisting that Greece has "absolutely decided that the stability program will be implemented in every measure".The euro, which fell to an eight-month low against the US dollar last week, traded a little higher at $US1.3702 late on Wednesday as markets responded to news of a possible rescue for Greece.
© 2010 The Age