European officials hold off on bailout package for Greece
Tuesday, March 16, 2010
LONDON -- European finance chiefs failed to produce a detailed bailout plan for Greece on Monday but laid the groundwork for a potential rescue if the financial situation in the troubled Mediterranean nation deteriorates sharply.
Analysts had hoped that a meeting in Brussels of finance ministers from the 16 nations that use the euro would yield a long-awaited plan to aid Greece, which is struggling to calm investors. Greece needs to borrow $74 billion this year to plug its budget deficit and avoid a default that could send bond and currency markets reeling in Europe and beyond.
But some European governments blame Greece for driving itself into a financial hole and remain deeply reluctant to let it off too lightly.
In a sign of that reluctance, the finance ministers who met Monday said merely that they had reached agreement on possible ways to aid Greece that did not violate European Union laws. The E.U. is prohibited from lending money to member nations to plug budget shortfalls, meaning that any rescue package for Greece would have to be tailored in a careful manner.
While declining to outline how a rescue could work, Luxembourg Prime Minister Jean-Claude Juncker, head of the eurozone economy group, said a more detailed proposal would be worked out before a meeting next week of E.U. leaders, with the size and shape of any aid package contingent on their agreement.
"In case of need, and we still don't think it will be necessary, an agreement can be reached in the euro area for coordinated action by the governments and the European Commission, and bilateral aid could be granted in this way," Juncker told reporters.
Officials in Brussels told Bloomberg News that any rescue would probably involve E.U. nations pooling resources into a fund that could be used to make loans to Greece.
In expressing optimism that a rescue would not be necessary, Juncker and other ministers cited a new round of austerity measures and tax increases meant to pull Greece back from the brink. Given the still present risk of default, however, investors have continued to demand relatively high interest rates to lend to Greece, which has looked to the E.U. for standby aid to ease concerns and bring those interest rates down.
E.U. ministers on Monday suggested that they would extract a price from Greece if it ultimately requires aid and that cheap money was not in the offing.
"The objective would not be to provide financing at average eurozone interest rates, but to safeguard financial stability in the euro area as a whole," the ministers said in a statement.