Greece, the vortex of the crisis that's roiling European finances, will remain an “integral” part of the eurozone, declared the leaders of Germany, France and Greece.
Following a telephone conference call between Greek Prime Minister George Papandreou, French President Nicolas Sarkozy and German Chancellor Angela Merkel, reassurances were made that Greece will meet its deficit reduction targets and that its future in the European currency will be secure.
A spokesman for the Greek government, Elias Mossialos, told reporters: In the face of the extensive rumors of the last few days, it was stressed by all [parties] that Greece is an integral part of the eurozone.”
A spokesman for Merkel said that she and Sarkozy emphasized that Athens must dutifully adhere to its deficit-reduction goals. This is the precondition for the payment of future tranches of the [bailout] program, he said. The success of Greece's adjustment will strengthen the stability of the eurozone.
Leaders of France and Germany – the two most powerful and influential nations on the continent -- sought to calm the markets worried over Athens ability to enforce austerity measures.
Indeed, concerns are mounting that Greece, which has already agreed to two huge bailouts, may still default on its debt.
The finance minister of Holland, Jan Kees de Jager, has also warned Athens to meet its deficit targets – adding the proviso that it wouldn't receive any more funding if it failed to impose tough austerity measures.
“I am worried about the fact that Greece is running behind,” he told media outlets. That we cannot accept as the international community, we cannot accept it as the Netherlands. Far-reaching austerity measures, economic measures are painful. But they must absolutely happen. If they don't, aid will stop.”
More worrying, the European Commission recently said Greece’s budget deficit for 2011 will reach 9.5 percent of GDP, significantly higher than Athens’ original 7.6 percent forecast. For 2012, the commission predicted Greece’s deficit will edge up to 9.3 percent of GDP (again, much worse than the country’s own 6.5 percent expectation).
Greece faces a mounting dilemma – it complains that the recession has cut deeper than originally forecast, leading it to request revised deficit targets.
Prior to the discussions between Papandreou, Sarkozy and Merkel, the president of the European Union recommended the eurozone issue joint bonds as a new way to ease the spiraling debt crisis. Under the euro bonds proposal, eurozone countries can borrow money collectively -- and the weaker member states like Greece and Portugal would be able to access financing more cheaply than on regular bond markets.
However, Germany, the largest economy in Europe, is opposed to this plan since it can attract investors to its government bonds with much lower interest rates.