EU summit overshadowed by Greece's fiscal woes

22:22, February 11, 2010      

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An informal summit of European Union leaders on Thursday, originally called to work on a new economic strategy for the next decade, has been overshadowed by Greece's financial woes.

The gathering was the first EU summit chaired by European Council President Herman Van Rompuy, who had hoped the meeting would focus on an economic blueprint for the 27-nation bloc by 2020.

But Greece's money problems, a very recent addition to the summit agenda, proved to be the most closely watched issue and stole the show from talks concerning long-term economic strategy.

Expectations ran high ahead of the summit that EU leaders would lay the groundwork for a rescue of debt-laden Greece in order to prevent a spillover in the euro zone, a monetary union with 16 EU member states.

There had been increasing concern that Athens would not be able to handle its financial problems and as a result, threaten the stability of the entire euro zone. The concern put European stock markets under distress and pulled down the euro.

Greece's public deficit was estimated at 12.7 percent of its gross domestic product (GDP) in 2009, far above the accepted EU limit of 3 percent.

The Greek government submitted to the European Commission its stability program in January, pledging to reduce its budget deficit to 2.8 percent in 2012.

Despite the commission's endorsement of the plan, investors are yet to be convinced and the crisis was tending to spread along the periphery of the euro zone, with Spain and Portugal seen as the next weak links.

A European Council official said the EU summit had been delayed by around two hours to accommodate bilateral talks on support for Greece.

Greek Prime Minister George Papandreou met French President Nicolas Sarkozy, German Chancellor Angela Merkel and EU President Van Rompuy ahead of the summit.

Germany reportedly is leading efforts within the EU to help Greece, but it remained unclear what kind of help would come out of the summit.

Finance ministers from the euro zone held emergency talks Wednesday to search for a way to help Greece tackle its debt crisis. Sources said there would be a general statement from several countries to pledge support.

An EU official said on Wednesday that EU leaders would issue a statement concerning the Greek crisis, but he refused to disclose whether there would be any bailout plan for the country.

Austrian Chancellor Werner Faymann said the EU was to offer Greece a credit line with the help of the International Monetary Fund (IMF) to make sure that the country does not default on its debts.

Britain and Sweden, both of which are outside the euro zone and reluctant to pay for the bailout of Greece, preferred to seek help from the IMF.

However, some EU officials, including Luxembourg Prime Minister and Jean-Claude Juncker, president of the Eurogroup, have made clear the EU's problem had to be dealt with by itself.

Both the European Central Bank and the European Investment Bank, backed by EU governments, had said their statutes prohibited them from rescuing a member from deficit crisis.

EU rules also prevented the 27-nation bloc from bailing out a member. The most likely option was for some EU countries to help Greece in bilateral manner, either through loans or debt guarantees.

It was reported France and Germany, the two European economic heavyweights, were ready to show strong political support for Greece and wanted to get the entire EU on board, but the two would fall short of making promises of concrete aid measures.

No matter what kind of support, it may lead to the problem of moral hazard. The current crisis has been blamed on years of overspending by the Greek government, but the problem became the job of other EU countries to get rid of the mess.

EU leaders are likely to demand clear commitment from Athens to meet its responsibility in exchange for any support, analysts say.

Source: Xinhua
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