Arguing in the midst of a eurozone crisis that troubled Greece has not asked to be bailed out, EU leaders stood together today to say that the “Europeans pledged to help out Greece – if needed.” They settled on a ready-to-jump-in strategy to back the southern state – if markets are not reassured and if the euro falls further.
The euro, which has weakened against the dollar since the end of last year on concerns that Greece's debt problems could spread, fell in afternoon trading with investors disappointed that a clear bailout package for Greece did not emerge from the meeting.
The comments after EU heads of state met in Brussels is seen as something of a halfway strategy -- designed to buy time and stave off perceptions of disarray in the eurozone, including a possible humiliating IMF bailout of Greece.
The decision fell short of offering loans and/or loan guarantees to Greece expected by France and a reluctant Germany – and allows Greece to avoid a damaging appearance of insolvency. The EU leaders appear to be hoping that their statement of solidarity will change market perceptions of Greek weakness, following revelations of improper reporting of its true debt position and gross domestic product (GDP) figures.
"If we say things clearly enough, we won’t need to do anything,” a source in the French presidential palace told Le Monde on Thursday afternoon.
Starting later this month, Greek institutions will be put under “supervision” – following Greek acceptance – that will put European central bank as well as IMF specialists in Athens to observe and potentially correct Greek financial reporting practices. The Greek budget deficit is now running at about 12 percent of GDP, though the exact figure is not known – causing jitters among bond market investors.
The promise of help came today after Greek prime minister George Papandreou met separately with French president Nicolas Sarkozy, German chancellor Angela Merkel, the president of the ECB bank Jean-Claude Trichet, European commission president Jose Manuel Barroso, and Herman van Rompuy, the new EU council president.
"The Europeans pledged to help out Greece if needed, in exchange of additional efforts from Greece to clean up its finances,” said Mr. van Rumpoy. “No immediate intervention was decided, and Greece did not ask for any help.”
The real crunch time for Greece and possibly the eurozone comes this spring, in March and April, when Greece must transparently refinance itself. However, today’s decision is seen as allowing time for the EU and IMF to reinforce Greek operations and reassure investors and markets. Greece has long taken a hefty share of EU subsidies – something that occasionally rankles other members.