Greece has not asked any country for a bailout and is the victim of speculators intent on attacking a "weak link" in the euro zone, its leader said on Thursday (28 January) as the premium on its debt hit a new high.
Greek Prime Minister George Papandreou said his country was being targeted by speculators with ulterior motives opposed to the single European currency.
Financial markets are gripped by the fear that Athens will not be able to service its heavy debt, putting pressure on the euro and even raising speculation as to whether Greece could be forced out of the currency bloc.
Germany and France denied a media report that they were planning to give financial aid to Greece, whose budget deficit hit an estimated 12.7% in 2009.
According to the Financial Times Deutschland, Angela Merkel is still reluctant to commit unless there is clearer evidence that Greece is taking genuine measures to consolidate its finances.
Athens says it is seeking funds only through the markets, mainly in Europe.
Greek pledges
Greece has pledged to reduce its budget deficit this year to 8.7% of GDP through welfare cuts, tax reforms and savings on public-sector wages.
Papandreou told the World Economic Forum in Davos that Greece would not leave the euro area and would use the discipline of membership to slash its budget deficit and make long-postponed structural economic reforms.
"This is an attack on the euro zone by certain other interests, political or financial, and often countries are being used as the weak link, if you like, of the euro zone," Papandreou said.
Spanish Prime Minister Jose Luis Rodriguez Zapatero, whose country holds the European Union's rotating presidency, rallied to Greece's defence and told the same panel that those putting pressure on the euro now had opposed its creation at the outset in the 1990s.
French and German concerns
French newspaper Le Monde reported that countries, including France and Germany, were studying how to quell market nerves, but would only act if Athens did more to clean up its accounts.
German Finance Ministry spokeswoman Jeanette Schwamberger denied this, saying in a statement: "It is incumbent upon Greece to face up to its responsibility for the stability of the euro zone by its own efforts. Therefore, the federal government is not considering financially supporting Greece in its efforts to overcome its difficult budgetary situation. This applies both to would-be eurozone aid and particularly to bilateral aid."
A French government source took a similar line.
But Le Monde quoted "several senior officials" as saying that the euro zone "was ready to help Greece if the country assumed its responsibilities". One government source told the paper other eurozone countries did not want to see Greece seek help from the International Monetary Fund.
"Something will have to happen very soon as the market does not want to absorb the amount of upcoming Greek fund raising, under the status quo," said Jason Manolopoulos, portfolio manager at Dromeus Capital in Athens.
"The market is pushing for specific actions."
Bailout scenarios
The situation in Greece will be discussed at the 11 February summit of EU leaders in Brussels.
José Manuel Barroso, head of the European Commission, suggested the EU would not leave Athens without help. "It's quite clear that economic policies are not just a matter of national concern but European concern," Barroso said, according to the FT.
Eurointelligence, a website specialising in economic commentary and analysis, says talks seem to focus on several options: bilateral credits, which would mean that Germany as the largest euro area member pays the largest share. Another option would be an early release of funds to Greece under the EU's regional fund or via the European Investment Bank.
Under the 2007-2013 EU budget, Greece is supposed to receive 20.21 billion euros in structural funds. The disbursement of the remainder of these funds to Greece could be front-loaded. At the end of January, 18.07 billion euros of these funds were earmarked for but not yet paid to Greece.
This has already been done for central and eastern European members of the EU, which received seven billion euros of front-loaded structural funds last year to help them through the economic downturn under the EU's economic stimulus package.
The front-loading of structural funds can be decided by the European Commission, so it would be relatively easy to implement.
There is also growing support among EU policymakers for issuing joint Eurobonds to service the Greek debt (EurActiv 29/01/10).
Meanwhile, there seems to be agreement among EU member states that whatever happens, the IMF should not take the lead in a rescue.
'Dangerous weakness' in the euro area
Greece is not the only eurozone member to create headaches for Europeans.
International credit ratings agencies warned Portugal to come up with longer-term plans to combat its own deficit problems, saying this week's 2010 budget did not do enough to diminish their concerns.
German Economy Minister Rainer Bruederle told parliament a number of countries using the European single currency were in such a state they might have a fatal impact on the rest of the 16-member club.
"Some euro states are showing dangerous weakness. This may have fatal effects on all states in the euro zone," he said in a speech to the Bundestag lower house.
'Fatal' has more than one meaning in German and it was not immediately clear whether Bruederle was suggesting there was a threat to the euro zone itself.
(EurActiv with Reuters.)
