European leaders are facing a moment of truth at a Thursday summit,
as markets press them to come up with a financial safety net for Greece — with help from
the International Monetary Fund — to stop the euro's slide and keep debt
crises from afflicting more eurozone countries.
The euro hit a 10-month low against the U.S. dollar
on Wednesday as leading credit
ratings agency Fitch
Ratings downgraded Portugal's
debt, turning up the volume on investor fears that Europe's currency
union has no way to shore up members with troubled economies.
EU
Commission President Jose Manuel Barroso called on European
governments to end dithering over what to do and agree on a detailed
plan of financial help for Greece. He said their response at a two-day
meeting would be a test of "their commitment to European and monetary union."
But Germany
has blocked efforts by European
nations to come up with a bailout program, saying Greece isn't
asking for help, isn't on the verge of bankruptcy and should turn to the
IMF if it reaches a point where it can't borrow from markets. France and some EU
officials were opposed to IMF involvement.
European diplomats said frantic negotiations
Wednesday could see both France and Germany soften their views and find a
solution that includes the IMF and European Union sharing the burden of a
financial rescue. Speaking on condition of anonymity, they said Spain's
Jose Luis Rodriguez Zapatero is heading efforts to get the 16 eurozone
nations to meet separately Thursday on the crisis surrounding Greece,
along with the meeting by all 27 EU member governments.
Eurozone leaders have only met once for a summit
before at the height of the banking crisis in 2008. "He is pushing hard
for this and we think it is going to happen," said the diplomat.
EU President Herman Van Rompuy is also asking for a
eurozone summit, said another EU official. He met French President Nicolas
Sarkozy in Paris on Wednesday, Sarkozy's office said.
Greece's debt crisis has undermined the euro by
showing that the rules supporting it have not prevented governments from
overspending and running up large deficits and debt loads. Athens' woes
have led to fears other eurozone countries with troubled finances, such
as Portugal and Spain, will also come
under pressure from the bond
market and find themselves unable to borrow at acceptable costs.
Investors doubts that Greece will pay its debts are
leading markets to demand higher interest rates when Athens sells government bonds — rates
the government says it can't go on paying.
Worries the crisis is exposing fundamental weaknesses
in the euro weighed on its exchange rate, which was down 1 percent to
$1.3347. It had earlier fallen to $1.3335, its lowest since May.
"The time has come to make a decision," said Jean
Pisani-Ferry, an economist at the Bruegel think tank. "The eurozone
doesn't have a crisis
management regime ... Now it has to be done."
Germany
remains reluctant to put its taxpayers' money on the line to plug debt
problems Greece caused with years of overspending and faking budget
figures. A senior government official in Berlin said "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 constitutional court
unless it can prove that that any European or German aid is the last
option left to Greece.
The
European Commission's Barroso tried to sway them, saying a
bailout program would be "a safety net to be used only in case all other
means to avoid the crisis have been exhausted" that would protect the financial stability of
the currency.
There are now "concerns" about the eurozone's
stability, the EU's economy commissioner Olli Rehn said Wednesday.
Eurozone nations pledge last month to help Greece if the currency's
stability was in doubt, but didn't say how they would do that.
The Greek government says it isn't looking for money
but a detailed plan that would "exert influence" on markets and lower
crippling interest rates that are undermining Greek efforts to shave
billions of euros from its budget this year.
Spanish officials said individual loans from eurozone
governments would be the most likely bailout option. They said it was
"increasingly clear" that the IMF will be involved in some way in a Greek rescue, in
cooperation with EU nations.
Greek Prime Minister
George Papandreou warned he would go to the IMF if the EU can't
come up with anything. That would be a serious blow for the eurozone,
showing that it can neither prevent a crisis or rescue a member country
that risks default.
But his main aim appears to be to put pressure on markets to get
Greece's borrowing rates down, saying the country is being forced to use
the billions of euros it is saving from a tough austerity program to
pay extra debt costs.
Germany is not
sympathetic, with officials saying Greece can't simply seek a bailout
because it doesn't like the high costs markets are charging it because
they see it as a bad risk.
David Mikael Taclino
Inyu Web Development and Design
Creative Writer
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