Euro zone said to mull Greek financial rescue package | Europe| News and current affairs from around the continent | DW | 28.01.2010
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Euro zone said to mull Greek financial rescue package

The 16 euro-zone countries are reportedly examining possible steps to bail Greece out of its financial troubles. Soaring Greek debt has shaken confidence in the common European currency in recent weeks.

The windmills of Mykonos

Trouble in paradise?

Quoting unnamed European officials, the respected French daily Le Monde reported on Thursday that several EU governments, notably Germany and France, were holding consultations "to study financial support mechanisms for Athens."

Among the plausible solutions, the newspaper said, were bilateral loans between various EU countries and Greece or the early release of EU internal development funds. EU law prohibits any direct bailouts for countries that use the euro.

In exchange for such aid, euro-zone members may demand that the Socialist government of Prime Minister George Papandreou take drastic measures to rein in the country's huge public spending deficit.

Greece 'under attack'

Financial markets are concerned that Greece is unable to service its mushrooming debt, which has put downward pressure on the European currency, even generating speculation that the country could be forced out of the euro zone - an unprecedented step with possibly volatile, and unpredictable, market repercussions.

Hit hard by the global financial crisis, Greece has been faced with three downgrades of its international credit rating.

Greek Prime Minister George Papandreou

Papandreou has tried to soothe concerns about his country's ballooning debt

Speaking at the World Economic Forum in Davos, Switzerland, on Thursday, Papandreou accused outside, unnamed interests of targeting Greece with "an ulterior motive or agenda."

"We're in a jittery time. There is a lot of speculation. Even rumors can create problems for serious governments," he said.

In Berlin, a spokeswoman for the German foreign ministry denied the Le Monde report. "The government is not considering financial support to Greece," Jeanette Schwamberger said.

A European Commission spokeswoman and the French economics ministry declined to comment on what they termed "rumors and speculative articles."

Bailout would be political dynamite

European Central Bank officials have said Greece should not expect a bailout, a warning that was repeated by the head of the German Central Bank, Axel Weber, earlier this week.

"Politically, it would not be possible to tell voters that one country is being helped out so that it can avoid the painful savings that other countries have already made," Weber said.

Euro-zone members, however, are worried that, if they do not help, Greece may be forced to seek help from the International Monetary Fund, a move that would not only be an embarrassment but that would also undermine the independence of the European Central Bank.

The Greek government has vowed to cut its public deficit to 8.7 percent of gross domestic product this year after it ballooned to 12.7 percent in 2009, but that figure is still nearly triple the three percent threshold required by the European Union.

Editor: Nancy Isenson

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