MercoPress, en Español

Montevideo, March 29th 2024 - 08:22 UTC

 

 

Euro’s most crucial week since creation; Greece closer to an IMF rescue

Monday, March 1st 2010 - 05:52 UTC
Full article
German Chancellor Angela Merkel: no EU bail out German Chancellor Angela Merkel: no EU bail out

German Chancellor Angela Merkel warned Sunday that the Euro is facing its most serious crisis since its launch a decade ago. The comment comes as European Union officials prepare to visit Athens Monday amid reports of an EU bailout whose effects could lead to further debt crises in the continent's troubled south.

Greece has been at the centre of a storm that has rattled currency and stock markets fearing a sovereign default because of its massive debts. While Greece has been the focus, other countries such as Spain, Portugal and Ireland are also causing concern.

The European Union's top finance official, Olli Rehn, will be in Athens Monday in a final effort to persuade Greece to force further cuts in public spending and services, increases in retirement ages, tax hikes and black-market crackdowns, after last week's austerity announcements failed to reassure bond markets.

The harsh measures, which have already spurred unrest among the Greek public, may also be a precondition for a bailout package, in order to reassure EU taxpayers that Greeks are bearing a share of the burden. Economy Minister Louka Katseli said that extra measures likely “will be announced soon.”

Athens only has enough funds left to keep its government solvent for two more weeks, after which it will need to refinance €20 billion in loans due in April and May. It is currently preparing Greece's second bond issue of the year amid a collapsing credit rating and soaring borrowing costs.

Contradicting reports this weekend from German and French officials, Ms. Merkel strenuously denied that Germany, along with France and the Netherlands, is putting together a package that would see government-owned banks purchase that debt using government funds.

“That is definitely not the case. We've got a treaty that does not include any provision for bailing states out, to help them out of a jam. We can best help Greece at the moment by making clear that Greece has to do its own homework, just like it is doing at the moment.”

Ms. Merkel is due to meet with Greek Prime Minister George Papandreou in Berlin Friday, and Greek officials said they expect a bailout deal to be announced by then.

European officials are adamant that they do not want to send the International Monetary Fund to rescue Greece using one of its bailout packages, which provide emergency loans in exchange for mandated austerity measures. This, they say, will be perceived as a failure of the Euro zone to correct its own problems.

But there are fears that an EU bailout could trigger a domino effect and therefore an IMF rescue would be more prudent, as the organization has funds for this purpose and would serve as a politically neutral target for Greek public anger – and, more importantly, an IMF bailout would not distort debt markets by creating investor expectations of future EU bailouts.

This is the first such crisis since the euro was launched as the currency of 16 countries a decade ago, and there is very little sense of how to resolve it.

In the past, when countries like Greece and Italy have faced debt crises, they've run the printing presses and devalued their currencies, an inflation-provoking move that causes economic devastation but leaves neighbouring countries untouched.
 

Categories: Economy, Politics, International.

Top Comments

Disclaimer & comment rules

Commenting for this story is now closed.
If you have a Facebook account, become a fan and comment on our Facebook Page!