EU summit to get to grips with Greece rescue plans

 @ibtimes
on February 11 2010 3:56 AM

European Union leaders are expected to lay the foundations for a financial rescue of Greece at a summit in Brussels on Thursday, but any package of support is likely to require major economic adjustments by Athens.

Germany and France are expected to take the lead in sending a message that the EU will help Greece tackle its debt and deficit problems. But the structure, size and any conditions attached to a deal are unclear and probably will not be worked out until EU finance ministers meet next week, EU sources said.

We have to help Greece, and Europe will do it as well as the Eurogroup, Spanish Prime Minister Jose Luis Zapatero told reporters in Brussels late on Wednesday, referring to a meeting of EU finance ministers in Brussels on Monday.

Greece's debt crisis is not officially on the agenda for Thursday's one-day summit, but it will be discussed by leaders over lunch with the president of the European Central Bank, Jean-Claude Trichet, and a statement is expected afterwards.

Sources say that statement is likely to make a strong political statement of support for Greece, but is unlikely to lay out any specific measures for helping the country.

The summit was due to start at 0930 GMT, but was delayed by bad weather in Brussels which slowed the arrival of some participants, meaning the meeting will now only begin at 1100.

The meeting of the EU's 27 leaders, their economic advisers, the central bank chief and other senior EU officials is being watched intensely by financial markets, with Greece facing the threat of a debt default and EU members unsure how to help.

A default would have profound repercussions for the euro single currency used by 16 EU countries, and would put renewed market pressure on other high debt, rising deficit euro zone countries such as Spain, Portugal and Italy.

A senior EU source played down the prospects of a rescue package emerging on Thursday, saying the details would be left to EU finance ministers, who meet as the Eurogroup on Monday.

You have to consider the sequencing of the whole political process -- the summits are there to define the political direction while the details are worked out at the Eurogroup, the source said.

STRUCTURAL HELP?

Jean-Claude Juncker, the chairman of the Eurogroup, held a videoconference with them to discuss rescue proposals on Wednesday and told a Luxembourg newspaper that those plans would be laid out to leaders at Thursday's summit.

A French diplomatic source said Eurogroup finance ministers had discussed aid for Greece but not come to any agreement. The source told journalists in Paris that France was working with Germany on a joint declaration of political support for Athens.

France and Germany are expected to hold a joint briefing in Brussels later on Thursday, potentially shedding more light on any deal to secure Greece's financial future.

Thursday's summit, originally called in January to discuss the EU's 2020 growth strategy, has become a major focus for markets, with Athens needing to borrow 53 billion euros ($75 billion) this year to cover its deficit and refinance debts.

Yields on Greek debt have soared over the past month -- though they have fallen in recent days as the possibility of EU support has increased -- while concerns persist that Greece's problems could spill over to Portugal and Spain.

Greek Prime Minister George Papandreou held talks in Paris on Wednesday but said afterwards that he had not asked French President Nicolas Sarkozy for help. Sarkozy expressed support for Greece's efforts to tackle the crisis, Papandreou said.

His office said he held calls with other European leaders and would hold a news conference after Thursday's summit.

One possibility would be for Germany, via a state-owned bank, to buy Greek government bonds, ensuring that its short-term debt requirements are financed, a German member of the European Parliament told Reuters on Wednesday.

Alternatively, direct budget support might be provided via the early release of EU structural funds or some similar mechanism, but it would probably have to be conditional on Greece making deep, IMF-style structural adjustments.

That in turn could provoke further social unrest in Greece, where unemployment is near 20 percent and unions are threatening mass strikes that could damage the Socialist-led government.

Greece is sitting on debts that are expected to hit 290 billion euros this year. The cost of servicing that debt has risen as bond markets have punished Greece for its financial profligacy, pushing yields higher.

At the same time, Athens has a budget deficit of 12.7 percent of gross domestic product, more than four times the EU limit. Further denting confidence is the fact the EU regards Greek statistics as unreliable.

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