Eurozone promises to bail out Greece in move to calm crisis

Published on Thursday 11 February 2010 20:38

EU LEADERS last night vowed to rescue the Greek economy if necessary – hoping the promise itself will be enough to restore confidence in the single currency.

A summit declaration in Brussels commits only the 16 eurozone member states to any bail-out, leaving the Prime Minister Gordon Brown free to distance the British taxpayer from the cost.

A Downing Street statement welcomed the commitment of the "euro-area" member states to "take determined and co-ordinated action to safeguard financial stability in the euro area as a whole".

Arriving at the talks, Mr Brown was asked whether British taxpayers may have to contribute to a bail-out if support is needed from the International Monetary Fund. He said: "There is international support available, as negotiated at the G20 summit, but the discussions at the moment are within the euro-area."

Greece did not seek financial support at yesterday's talks but its prime minister, Georges Papandreou, agreed to reduce his budget deficit by 4 per cent this year from its current 12.7 per cent of GDP – more than four times the 3 per cent maximum allowed under single currency rules.

In return, single currency countries "will take determined and co-ordinated action, if needed, to safeguard financial stability in the euro area as a whole", said the summit final declaration. The EU's new permanent president, Herman Van Rompuy, told a press conference: "We have said we will take action if necessary. Such action is not necessary today."

The hope is that the pledge alone will revive markets and prevent the scale of Greece's public finance problems spreading to other single currency countries already facing difficulties – Spain, Portugal and Ireland.

The immediate market response was a slight fall in the euro's value by about 1 per cent against the pound and the US dollar, leaving the single currency worth about 87p.

EU finance ministers will meet on Monday to consider further measures Greece should take to cut its deficit. Meanwhile, Greek recovery efforts will be monitored by the EC working with the European Central Bank and "drawing on the expertise of the IMF" yesterday's statement said.

Mr Van Rompuy said the outcome showed European solidarity, but concern remained that the euro's credibility has been rocked by the way Greece has been able to breach single currency stability rules so flagrantly.

Business Secretary Lord Mandelson was one who leapt to the euro's defence, saying that the Greek crisis has done nothing to dampen his enthusiasm for Britain eventually joining the single currency.

German Chancellor Angela Merkel said: "We stand shoulder to shoulder with Greece," but added she wanted reliable information "about what Greece is actually doing".

France's Nicolas Sarkozy said: "We wanted to shoulder our responsibility" by offering political support to Greece. He added: "It is not in our interest to foster whatever speculation some will indulge in."

Meanwhile, European Central Bank president Jean-Claude Trichet said he will join in monitoring Greece's budget cuts – and planning new ones if necessary.