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NewsFebruary 12 2010

EU support for Greece fails to calm fears for eurozone

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The promise of European Union to support Greece failed to calm fears or halt the slide in the euro, which continued to fall against the dollar. 

Although EU leaders pledged “determined and co-ordinated action if needed to safeguard stability” of the eurozone, which has been shaken by turmoil in bond markets amid fears that Greece’s debt problems could spread, the lack of a detailed bail-out plan left investors uncertain. Global stocks and bonds recovered slightly, but the euro slipped by 0.9% against the dollar.

Although Nicolas Sarkozy and Angela Merkel, the French and German leaders, made an effort to show solidarity on how to deal with the Greek debt crisis, the EU annoucement did not provide immediate support for Athens, and only offered implicit assurance to help Greece if it had problems refinancing debt in April and May. 

Mr Sarkozy said: “We have committed to a show of solidarity, transparency and discipline.”

EU president, Herman van Rompuy, described the deal as a “polticial statement” and said that leaders had not come up with a detailed rescue package because Greece had not asked for assistance.

While the EU endorsed Greece’s plans to cut its budget deficit by 4 percentage points of gross domestic product this year, the agreement sets out guidelines that Greece will be expected to follow if it were to be given financial support.

The agreement also states that Athens would be expected to “do whatever is necessary” to eliminate the deficit by 2012, showing that the country's budgetary and economic policies will be subjected to an unprecedented degree of surveillance by European Union authorities as the price of a promise of support.

For more on the eurozone go to The eurozone: Make or break time

For more on sovereign debt go to Cleaning up sovereign debt

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