Euro zone signals support for Greece bailout

THE PROSPECT of extraordinary European support for Greece remained alive yesterday despite Germany and France denying they were working on a rescue plan. High-level officials made it clear that the country would not be abandoned.

The European authorities remain convinced that a resolution of Greece’s fiscal problems lies within the union’s capacity and see no prospect of International Monetary Fund intervention in the country.

The big fear is that Greece’s problems could have a contagion effect on other debt-dependent euro members, Ireland among them, overwhelming the currency.

German economy minister Rainer Bruederle said yesterday a number of countries in the euro are exhibiting “dangerous” weakness. “This may have fatal effects on all states in the euro zone,” he said in a speech to the Bundestag lower house of parliament.

EU law, however, prohibits the granting of overdraft facilities for a member state from the European Central Bank.

However, a separate clause in the European treaties that allows the European Commission to grant under certain conditions EU financial assistance to a member state facing difficulties or “seriously threatened with severe difficulties” by exceptional occurrences beyond its control.

The exact form that such assistance may take remains unclear and is unlikely to be made public in advance of any intervention for fear of raising “moral hazard” issues for Greece, rewarding bad behaviour, and easing pressure on Athens to put its house in order with radical corrective action.

In a system struggling under the weight of rampant corruption and unreliable statistics, Greek premier George Papandreou is attempting to steer through a swingeing austerity programme.

The commission will hand down its judgment on that programme next Wednesday, setting a new deadline for the country to bring its budget deficit within the EU limit of 3 per cent. “The best way now to help Greece is in fact for Greece to respect the obligations Greece has under the stability and growth pact,” European Commission chief José Manuel Barroso told reporters. He added, however, that it was “quite clear that economic policies are not just a matter of national concern but European concern.”

Mr Papandreou said his administration has not asked any country for a bailout as its battles financial speculators. He was speaking as Greece again came under pressure in the financial markets.

Germany and France each denied a report in Le Monde, the French daily paper, which said they were discreetly discussing how they might provide assistance to Greece. The commission declined to comment on what it described as “speculative” articles.

The official spokeswoman for Joaquin Almunía, the outgoing economic and monetary affairs commissioner, said that other countries “with determination and political will” had demonstrated that they can surmount their fiscal problems.