Greece 'integral' to the eurozone, say European leaders

 
Greek Prime Minister George Papandreou George Papandreou spoke with Nicolas Sarkozy and Angela Merkel by telephone

The leaders of Greece, France and Germany have said that Greece is an "integral" part of the eurozone.

It follows a telephone call between Greek Prime Minister George Papandreou, French President Nicolas Sarkozy and German Chancellor Angela Merkel.

Greece also reiterated that it was determined to meet all the deficit reductions plans it agreed to in exchange for its two bailouts.

Concerns continue that Greece will default on its debt.

The comments are aimed at calming markets that have seen turbulent trading in recent weeks over fears surrounding Greece's finances.

This has also increased speculation that Greece may have to leave the 17-nation single currency zone.

Greek government spokesman Elias Mossialos said: "In the face of the extensive rumours of the last few days, it was stressed by all that Greece is an integral part of the eurozone."

Mrs Merkel and Mr Sarkozy said in a joint statement: "Putting into place commitments of the (bailout) programme is essential for the Greek economy to return to a path of lasting and balanced growth."

Start Quote

[Greece sticking to its targets] is the precondition for the payment of future tranches of the programme”

End Quote Spokesman for Angela Merkel

The European Union and the International Monetary Fund agreed in May of last year to give Greece 110bn euros ($151bn; £96bn) in emergency loans, which it is still receiving in tranches.

It was then agreed in July of this year that Greece would gain a second bailout fund of 109bn euros, but this still has to be ratified by the parliaments of a number of eurozone member states.

Greece is set to receive the next loan from its initial bailout later this month, but it will get this only if inspectors from the European Union, European Central Bank and International Monetary Fund agree that it is keeping up with its spending cut targets.

There are some fears that they may rule that Greece has fallen behind. Without this month's loan, Greece will not be able to meet its debt payments by the middle of next month.

A spokesman for Mrs Merkel said: "[Greece sticking to its targets] is the precondition for the payment of future tranches of the programme."

Eurobond proposal

Analysis

The Greek government may be cautiously optimistic that Europe's leaders will stay their course with their ailing southern partner, but among ordinary people the message is unlikely to reassure them.

Anti-austerity protests have returned after a lull over the summer. Many are furious at a new property tax and strikes have begun by rubbish collectors, hospital workers and customs officials.

The worst case scenario of default or even leaving the eurozone altogether is again being whispered, although the government is determined to avoid both.

And so a short-term show of faith from Europe's leaders may be welcome, but in the long run, it's unlikely to relieve the growing sense of despair here.

The talks between Mrs Merkel, Mr Papandreou and Mr Sarkozy came after EU president Jose Manuel Barroso said he would urge the eurozone nations to issue joint bonds as a means to tackle the debt crisis.

Under so-called eurobonds, member states would be able to borrow money collectively.

The idea is that this would strengthen the positions of the more indebted nations such as Greece and Portugal as it would allow them to borrow more cheaply.

However, Germany has repeatedly expressed its opposition to the idea.

Because Germany is the strongest economy in the eurozone, it can attract buyers to its existing government bonds with much lower interest rates, so it has much to lose from eurobonds being introduced.

Also on Wednesday, credit rating agency Moody's downgraded two French banks after reviewing their exposure to Greek debt.

Credit Agricole was cut from Aa1 to Aa2 and Societe Generale from Aa2 to Aa3.

A third bank, BNP Paribas, was kept on review for a possible downgrade.

 

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  • rate this
    +2

    Comment number 253.

    The Greeks need to become masters of their destiny again - all the time they remain in the Euro they cannot do it. They cannot pay the money back, nor can they value their currency to work their way out the problems. The process of exiting the Euro and the default needs to be managed by ALL the parties to minimise negative impacts. Finally, nations leaving the Euro is NOT the end of the EU.

  • rate this
    +8

    Comment number 197.

    Any further money ploughed into Greece without a full audit is money down the Eurodrain. Until Greece becomes a full member of the EU (by fully complying with the rules of membership) no further bailout money should be considered. Plus, there should be a compulsory tax audit to see where the money is really going, because only a fraction of Greece's collected tax actually reaches the treasury.

  • rate this
    +11

    Comment number 161.

    The other euro-zone countries can either come together to issue euro bonds or break-up to get rid of countries like Greece which have taken on too much debt. The current half-way house cannot continue for much longer. France and Germany talk about Greece being integral to the euro-zone, but everyone knows that Greece is not integral. When it comes to the crunch, Greece will be cut lose.

  • rate this
    0

    Comment number 135.

    A Greek default does not mean the end of the Euro but it will certainly make borrowing much more difficult for the Eurozone as a whole which will inevitably lead to big cuts in welfare and benefits. The big risk for the person on the street is that interest rates will go through the roof - that's fine if you have savings but no so good if you have a mortgage.

  • rate this
    +5

    Comment number 124.

    Ever since the IMF and the ECB got involved, the Greek debt has sky rocketed. The reason is simple: The 'loans' that were supposed to get the country out of the crisis came with such high interest rates that in effect made the Greek nation dependant on the next loan instalment in order to pay the interest on previous loans. No money went to investment, infrastructure or improving living standards.

 

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