April 04, 2020 / By mobanmarket
Informal European Council to be dominated by eurozone crisis talks.Contagion fears cast shadow over eurozone
Government leaders will meet in Brussels today (11 February), facing the biggest crisis in the eurozone since the launch of the single currency.
As a new European Commission began its mandate yesterday (10 February), finance ministers of the eurozone held their first-ever teleconference to discuss different options available for supporting Greece.
The timing of the discussion, ahead of today’s informal European Council and a scheduled meeting of the finance ministers in Brussels next week, suggests that Greece’s problems are deemed to be too pressing to hold off.
Today’s summit, which Herman Van Rompuy, the president of the European Council, had initially convened to discuss Europe’s economic recovery, will be called upon to restore the confidence of the financial markets and investors in the eurozone’s finances.
The market concerns have led to a spike in the interest charged on Greek government bonds, as well as on bonds issued by Portugal and Spain, whose public finances are also perceived to be vulnerable. The value of the euro has also dropped sharply, last week touching an eight-month low against the dollar, accompanied by sharp dips on global stockmarkets.
Finance ministers are expected at their meeting next week (15-16 February) to agree on structural reforms that Greece should implement to rein in its budget deficit, which is estimated to have reached 12.7% of gross domestic product (GDP) in 2009. They will also approve a monitoring surveillance regime to ensure that Greece implements what has been agreed. The market situation, however, indicates that investors do not believe that these measures will work.
Van Rompuy has added a discussion of Greece to the agenda of today’s summit, which was originally going to focus on long-term efforts to boost the EU’s economic growth and on climate change. Jean-Claude Trichet, the president of the European Central Bank, will take part in the discussion.
Officials would not be drawn on whether EU leaders would come up with a support plan for Greece, although an EU source said he “would not be surprised” if a communication were issued. Markets have been buoyed by news that plans to help Greece are under discussion, placing further pressure on governments to agree some kind of support.
Wolfgang Schäuble, Germany’s finance minister, yesterday met national parliamentarians to discuss possible support measures for Greece, including loan guarantees.
José Manuel Barroso, the president of the European Commission, yesterday refused to be drawn on measures that could be taken to help Greece, nor on whether help should be sought from the International Monetary Fund (an option being advocated by the UK). “The Commission is following the situation closely,” he said. He said: “We have all the resources necessary, of course, if members of the euro area so wish, to deal with Greece’s problems.”
Greece’s Prime Minister George Papandreou said after a meeting yesterday in Paris with France’s President Nicolas Sarkozy that his government would do everything necessary to meet its deficit target for this year – 8.7% of GDP, down from 12.7% last year.
Papandreou’s socialist government, in office since October, has so far benefited from a certain restraint by trade unions, which recognise in principle that some sort of austerity plan is needed. But on Wednesday, public-sector workers brought the country to a near-standstill. All domestic and international flights were grounded as flight traffic controllers went on strike. Schools remained closed and hospitals only treated emergency cases. Demonstrations against a 4% wage cut for public workers and tax reforms drew only a few thousand protesters in Athens and the country’s second city, Thessaloniki, but the strike was a warning to the government of the formidable power of trade unions to disrupt economic life.
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