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Spain calls 10 May summit over Greece

Published 28 April 2010 - Updated 03 May 2010
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Eurozone leaders are discussing the possibility of holding a special summit in Brussels on 10 May to activate an aid package for Greece, a spokesman for the Spanish government said on 27 April.

"There are talks at the highest level, and 10 May is the first available date after the vote for activation in the Greek parliament on 6 or 7 May," said the spokesman, whose country holds the European Union's rotating presidency.

"The talks were already going on and have nothing to do with the downgrades by ratings agencies," the spokesman added.

Speaking a few hours later, European Union President Herman Van Rompuy said on Wednesday that negotiations on Greece's debt are well on track, and there is no question of restructuring it.

"Negotiations are going on, they are well on track, and there is no question about restructuring the debt," Van Rompuy told a news conference in Tokyo, where a EU-Japan summit is taking place.

He confirmed that a meeting of Eurogroup leaders would be called around 10 May.

Greek debt slashed to junk status

Rating agency Standard and Poor's slashed Greek debt to junk status on Tuesday and also downgraded Portugal, as investors worried that political pressures could block a multi-billion euro bailout of Greece.

Markets are not convinced that governments will have the political will to reach and sustain an agreement on the aid, especially in Germany, where public opinion is strongly against helping Greece and where Chancellor Angela Merkel's party risks defeat in a regional election on 9 May.

Contagion to Portugal?

Fears that Greece's debt problems could spread to other eurozone countries are "unfounded" despite a downgrade of Portugal's credit ratings on Tuesday, a member of the European Central Bank Governing Council said.

Two-year Portuguese yields hit 5.35% - surpassing the 5% rate at which the European Union plans to offer aid to Greece.

The cost of insuring five-year Greek and Portuguese debt also hit record highs at 821 and 370 basis points respectively, according to Credit Default Swap (CDS) monitor CMA DataVision.

Tuesday was also a big day in the equities market, where the Paris CAC-40 index lost 39 billion euros - equivalent to the size of Luxembourg's economy.

"Looking at economic fundamentals, especially the debt situations, one has to see that there are clear differences between Greece and other countries of the euro zone," Ewald Nowotny of the ECB Governing Council said after a lecture at Princeton University. "So, economically, contagion is unfounded."

But investors are worried that Greece may not be able to secure financial aid in time to meet a debt deadline on 19 May as disbursement of the funds agreed by eurozone leaders.

Workers protest in Athens

Greek transport workers walked off the job on Tuesday to protest against austerity measures and labour unions called a national strike for next week, piling more pressure on the government.

Hundreds of striking public transport workers marched in Athens chanting 'Hands off our salaries,' while buses, trams and metro trains stopped operating for six hours.

Later, about 2,000 public and private sector workers, students and anarchists marched to parliament holding red flags and banners reading 'To the streets!' and 'Out with the IMF!'

Protests against spending cuts and tax hikes aimed at pulling Greece out of its crisis have so far been limited, but polls indicate that public anger is rising.

Many Greeks fear the aid package will lead to further belt-tightening.

"The government's resorting to the IMF support mechanism signals a barbarous attack on workers' rights," public sector union ADEDY said. "We, the workers, will continue and escalate our struggle against the anti-popular measures of the government, the EU and the IMF."

ADEDY and the umbrella private sector union GSEE, which together represent about 2.5 million people or half Greece's workforce, announced a joint strike for 5 May 5 - their third this year against the government's deficit-cutting plans.

The Socialist administration has already sparked strikes and demonstrations over the past month by cutting public sector pay and raising taxes, but has vowed to press on with its programme.

Papandreou shows resolve

"I am determined to do whatever it takes, when it is needed, to revive our country," Prime Minister George Papandreou told his parliamentary deputies on Tuesday.

"It's now or never - but we will succeed."

A new opinion poll, the first since Greece asked to trigger the aid, indicated that 61% of Greeks oppose the government's decision to ask for the EU/IMF package.

Only 31.9% thought the socialist PASOK government should stay on, while 31% favoured a national unity government between PASOK, conservative New Democracy and a far-right party. Another 27% liked neither option and 10% had no answer.

Nevertheless, 50.8% approved of Papandreou's performance as prime minister.

(EurActiv with Reuters.)

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Positions: 

Greece is unlikely to be the last euro nation to need an International Monetary Fund bailout, with Ireland, Spain and Portugal "conspicuously vulnerable," said Harvard Professor Kenneth Rogoff, quoted by Bloomberg.

"It's more likely than not that we'll need an IMF programme in at least one more country in the euro area over the next two to three years," Rogoff, a former IMF chief economist who has co-authored studies of financial and sovereign debt crises, said in a telephone interview. "The budget cuts needed in Europe in many countries are profound," Rogoff says.

"The stakes are very high for Europe as it wants to avoid contagion," said Rogoff, who in 2008 predicted the failure of some large US banks prior to the collapse of Lehman Brothers Holdings Inc.

The head of economic research at Eurobank EFG Group, Gikas Hardouvelis, was quoted by AFP as saying: "Our foreign lenders would never want Greece to go bankrupt. They will lend us so we can repay our debts." Foreign lenders held 82% of Greek debt, he added.

In a recent briefing note for the Lisbon Council, a Brussels-based think tank, Alessandro Leipold, former Acting Director at the IMF’s European Department, warned the Greek debacle could soon transform into "a eurozone disaster".

"The Greek crisis has been severely mishandled by European policymakers," Leipold writes, saying "markets legitimately fear that matters are now beyond repair".

"A debt restructuring – and probably a disorderly one at that – is now generally seen as the most likely scenario, with contagion spreading from Greece to other European peripheral countries. The Greek debacle, if unchecked, could metamorphose into a eurozone disaster."

Leipold points out that, over its 60 years of existence, the IMF has developed an arsenal to deal with such crises. "The arms in this arsenal include a range of instruments and approaches: precautionary (i.e., non-disbursing) arrangements, prior actions and conditionality, programme reviews, waivers, and phased disbursements."

Leipold believes "the EU and the IMF can work together – provided a misplaced sense of amour-propre is set aside," citing ongoing cooperation in dealing with debt crises in non-eurozone countries, notably in Hungary and Latvia.

"Verbal undermining from ministers playing to domestic audiences must end, and Europe must find a common voice in the crisis, if its actions are to be seen and held to be credible."

Next steps: 
  • 10 May 2010: Possible Eurozone summit in Brussels.
Background: 

Greece is sitting on debts that are expected to hit 290 billion euro this year and has a budget deficit of 12.7% of gross domestic product, more than four times the EU limit. 

The cost of servicing that debt has risen, hitting the euro currency and prompting speculation over a bailout plan (EurActiv 04/02/10).

On 3 March, Greece unveiled a draconian 4.8 billion euro austerity programme targeted at civil servants, the rich and the church in a move designed to secure European help in tackling its crippling debt burden (EurActiv 04/03/10).

Under a compromise brokered by euro co-founders Germany and France on 26 March, Greece would qualify for assistance only if it were unable to borrow on the markets. It would take a unanimous eurozone decision to trigger a rescue (EurActiv 26/03/10).

On 11 April, EU finance ministers backed a detailed €30 billion emergency aid plan for Greece to borrow from eurozone governments at about 5% interest, a level significantly below market rates. 

The plan would come in addition to about €15 billion expected from the International Monetary Fund in the first year and could add up to the biggest multilateral financial rescue ever attempted (EurActiv 12/04/10).

The Greek government had been banking on a €30 billion loan at a 4% interest rate.

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