Europe

Home page

Europe

Eurozone ministers study Greek options

16 March 2010 00:21 (UTC +04:00)

Baku â€“ APA. Eurozone finance ministers yesterday studied options for coming to the rescue of Greece by establishing what would be the areaâ€™s first financial support facility for a debt-stricken government, APA reports quoting â€œThe Financial Timesâ€ newspaper.
â€œWe will try to find a workable solution on Greece,â€ Jean-Claude Juncker, the Luxembourg premier who chairs the 16-member eurogroup of finance ministers, said. â€œWe will discuss several options, to find a solution if one is needed. I donâ€™t think we will need one.â€
Mr Junckerâ€™s remarks echoed statements from Wolfgang SchÃ¤uble and Christine Lagarde, the German and French finance ministers, to the effect that no concrete offer of financial aid would be made to Greece at the meeting.
Instead, ministers intended to welcome a set of rigorous austerity measures adopted by Athens on March 3 as proof that it was finally taking the painful decisions needed to reassure financial markets that it would restore order to its public finances.
Possible elements of the contingency plan for Greece include direct loans from individual governments, above all Germany and France, and state guarantees to support a eurozone lending facility financed by bond issues.
Economists said such arrangements would fill important gaps in the architecture of European monetary union as it was designed in the 1990s, with a single, powerful central bank but a loose common fiscal framework.
â€œThis would be the first ever financial backstop facility put in place between EU member countries to deal with a sovereign issue. This is the first step of a major reform of the fiscal co-ordination mechanism in the euro area, a necessary step towards a sustainable union,â€ said Jacques Cailloux, an analyst at RBS European Economics.
Olli Rehn, the EU monetary affairs commissioner, indicated that the plans for Greece were nearing completion. â€œThe Commission is ready to table a proposal for a European framework for co-ordinated and conditional assistance,â€ he said.
However, EU finance ministers and their technical advisers were proceeding carefully, conscious that the support mechanism for Greece must not flout a â€œno bail-outâ€ clause contained in fundamental EU law.
The legal implications of an aid package are especially serious in Germany, where critics might launch constitutional lawsuits to prevent the disbursement of German funds to Greece.
But economists said the challenge of servicing tens of billions of debt every year, while simultaneously slashing the budget deficit below 3 per cent of gross domestic product by the end of 21012, might prove beyond Greeceâ€™s means unless it received support.
Thomas Mayer, economist at Deutsche Bank, said the latest Greek austerity measures could cause the economy to shrink by 4 per cent this year.
Copyright The Financial Times Limited 2010. You may share using our article tools. Please don’t cut articles from FT.com and redistribute by email or post to the web.