Greek PM to hold crisis talks with Merkel, Sarkozy

By Elena Becatoros

Associated Press

Published: Wednesday, Sept. 14 2011 5:15 a.m. MDT

Greek Prime Minister George Papandreou talks to the media during a press conference in Thessaloniki, Greece, Sunday, Sept. 11, 2011. Greece's cash-strapped government said Sunday it would impose a new property tax, on top of existing austerity measures, to contain this year's revenue shortfall and achieve a primary surplus in 2012.

Dimitri Messinis, Associated Press

ATHENS, Greece — The leaders of Greece, France and Germany will seek ways to contain the spiraling debt crisis and prevent it from further roiling global financial markets in a teleconference on Wednesday evening.

Fears in recent days that Greece was heading rapidly towards a chaotic default have sent the interest rates on 10-year government bonds soaring to new record highs. On Wednesday, they stood at the alarming level of 25.3 percent, more than 23 points higher than the German equivalent, suggesting investors have all but given up on Greece being able to fix its public finances.

German Chancellor Angela Merkel sought to calm fears this week and distanced herself from comments by her cice chancellor and others who suggested a Greek bankruptcy was possible.

Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou were to discuss the situation Wednesday evening, after a government meeting Papandreou called to address urgent fiscal reforms. The finance ministers from the wider 17-nation eurozone will meet on Friday in Poland.

Hours before the teleconference, Sarkozy and his prime minister "with a single voice reaffirmed France's determination to put everything in place to save Greece," government spokeswoman Valerie Pecresse said of a Cabinet meeting in Paris.

Sarkozy wants the call to focus on "the need for efforts in return and commitment from Greece," she said.

Traders nevertheless hoped that some form of new support would emerge and pushed Greek shares higher. The main Athens index outperformed its counterparts in Europe, rising 2.4 percent in early afternoon trading.

The main fear of a Greek bankruptcy is that it could destabilize other financially troubled European countries, potentially causing a defaults in Portugal, Ireland, Spain or Italy. It would also have a knock-on effect on banks, many of which are which are large holders of Greek government bonds.

Moody's rating agency on Wednesday downgraded the credit ratings of two French banks, Societe Generale and Credit Agricole, after a period of huge volatility in the markets as investors fret about exposure to Greek debt.

"We are confronted with the most serious challenge of a generation. This is a fight for the jobs and prosperity of families in all our member states," European Union Commission President Jose Manuel Barroso told the European Parliament in Strasbourg, France. "This is a fight for the economic and political future of Europe. This is a fight for what Europe represents in the world. This is a fight for European integration itself."

EU Monetary Affairs Commissioner Olli Rehn warned against a Greek default or speculation that the debt-ridden country should abandon the euro and return to its old currency, the drachma.

"Neither Greece nor the eurozone would be better off," he told lawmakers in Strasbourg. "Whatever way you look at it, it is absolutely certain that a default and/or exit of Greece from the eurozone would carry dramatic economic, social and political costs not only for Greece" but also affect countries throughout the EU and beyond.

Greece relies on funds from last year's €110 billion ($150 billion) international bailout to continue servicing its debt and pay salaries and pensions. But the lifeline could be cut if the country continues to miss strict fiscal and reform targets set as a condition of receiving the rescue loans.

The quarterly payout of the funds depends on reviews by Greece's international debt inspectors — the European Commission, European Central Bank and International Monetary Fund, known as the troika.

The next batch, worth €8 billion, is due in late September, but there were fears the troika would not approve its disbursement after the debt inspectors suspended their review earlier this month. They are due to resume their review in coming days. Without the next installment, the country has enough cash to keep it going only until mid-October.

Greece's government spokesman, Elias Mossialos, said Monday he believed the country would receive the funds.

In July, Greece was granted a second, €109 billion rescue package, but the terms of that deal have yet to be finalized, with Finland asking for extra collateral guarantees. Solving those requests will be a key topic at this weekend's meeting of eurozone financial chiefs.

____

Gabriele Steinhauser in Brussels, Sylvie Corbet in Paris and Nicholas Paphitis in Athens contributed.

Get The Deseret News Everywhere

Subscribe

Mobile

RSS