Euro zone countries held intensive talks on Wednesday on a
possible rescue for Greece, whose debt crisis has shaken the entire currency
union, as civil servants staged the first big strike against Athens' austerity
plans.
Financial markets gave Greece some respite as investors
hoped that other European governments would help Athens to head off a possible
default on its debt repayments.
Finance ministers of the 16 countries that share the common
European currency scheduled a video conference for Wednesday to discuss the
issue, a European Commission spokesman said.
However, EU law offers no clear procedure for staging the
first bailout of a euro zone country in the currency's 11-year history.
One possibility was for individual countries to offer
bilateral aid and Germany, one of the few whose finances are in anything like a
fit state to do so, might take a leading role. This could sidestep rules which
restrict financial rescues at an EU or euro zone level.
In Berlin, sources in the coalition government said a deal
on which countries would help Greece, and by how much, could be reached on the
sidelines of an EU leaders' summit on Thursday.
Athens needs to borrow about 53 billion euros ($73 billion)
this year to cover a huge budget deficit and refinance debt which is coming
due. But investors have taken fright over the risks involved in buying Greek
bonds, and the government could slide toward default if they boycott future
debt auctions.
Germany and France would probably bear the lion's share of
any aid, since Italy and Spain, the other two big economies in the euro zone,
are themselves under financial pressure.
So far, officials across European capitals seem to have
decided little apart from the likely need to offer a financial lifeline to the
Greek government, which is sitting on a debts forecast to hit 294 billion euros
this year.
In Berlin talks were under way both within the center-right
coalition and with other euro zone governments.
"It has not yet been conclusively decided," said
one person who attended a meeting with German conservatives and Finance
Minister Wolfgang Schaeuble. "At the moment, various ideas are being
discussed about what could be done," said the source.
Greece accounts for only a small percentage of euro zone
output. But news that its budget deficit had spiraled to 12.7 percent of gross
domestic product last year, more than twice the announced level, dented
investors' confidence across the currency union and beyond.
Talk of a bailout lifted the world stocks and the euro. The
pan-European FTSEurofirst 300 index rose 1.3 percent, the Athens benchmark was
up 4.8 percent and Greek bank shares surged 8 percent.
Investors also regained a little faith in Greek government
bonds, which they have sold heavily in recent weeks. The yield on 10-year
government bonds was 276 basis point higher than on the German equivalent, the
narrowest in three weeks, and way below the recent high of around 400 basis
points.
PAPANDREOU SEEKS SUPPORT
In Athens, striking civil servants grounded flights and shut
many schools and offices in a foretaste of the resistance the Socialist
government faces to a wage freeze, pay cuts for higher public sector earners,
tax rises and a later retirement age.
Riot police briefly fired teargas demonstrators who tried to
break a security cordon but the protests were mostly peaceful. Some Greeks
seemed willing to give the government the benefit of the doubt despite the
harsh austerity plans.
Greek Prime Minister George Papandreou held talks in Paris
to seek support from the second biggest euro zone economy for his drive to
slash a huge budget deficit, although a French source said there was no
agreement yet on aid.
"We are ready to take any measures in order to make
this sure and guaranteed that we reach this goal," Papandreou said,
speaking at the Elysee Palace, adding that his government's deficit-cutting
plan would be "implemented in every detail."
Rating agencies and EU policymakers have said Greece, which
is prone to violent street protests, will not get support for free and urged
the government to be firm.
Credit ratings agency Moody's said partial implementation of
Greece's budgetary reforms would risk the country's debt being downgraded to
Baa1.
Private and public sector unions plan another show of
strength with a general strike on February 24.
EYES ON EU SUMMIT
EU leaders meeting in Brussels on Thursday with European
Central Bank president Jean-Claude Trichet may well issue a statement on
Greece's financial crisis, an EU source said.
Any financial assistance would likely be tied to strict
conditions, but the nature and scale of a rescue remain unclear, partly because
a treaty prohibition on EU bail-outs for euro zone members complicates the
task.
Economists at the Bruegel economic think-tank estimated
Greece's needs in a range of 12-24 billion euros.
The Wall Street Journal said Berlin was considering taking a
lead role with other EU partners in offering Greece and other highly indebted
euro zone countries loan guarantees in an effort to calm market fears of a
default.
A bilateral German bailout could involve a state-owned
German bank, like the KfW, buying Greek government bonds, a German member of
the European Parliament said on Wednesday.
(from Reuters)