European Union leaders emerged from their summit in Brussels today asserting the unity of the eurozone, having told Greece that any future financial aid would be conditional on implementing budget cuts and economic reform.
The government leaders agreed to task their finance ministers with drawing up detailed plans of how financial support might be provided, in the event that Greece asks for it.
European Commission President José Manuel Barroso said any decision on the form of aid would be taken by the EU’s finance ministers, who will discuss Greece’s public finances at a meeting next Tuesday.
Chancellor Angela Merkel of Germany said that Greece was “not alone” in tackling its economic problems. But she and most other national leaders were vague about what commitments the eurozone’s richer member states would be prepared to make to help Greece if needed.
“Our rule is not to create agitation, it is not to foster speculation, it is not to imagine worst-case scenarios, it is to take the decisions that are expected of us when the problems crop up,” said Merkel at the end of the meeting.
Luxembourg’s Prime Minister Jean-Claude Juncker, president of the Eurogroup, the finance ministers of the eurozone, said that financial support would be given to Greece in the event that the government fully implemented agreed economic reforms, if it still needed further help to reduce its deficit.
“It’s not money for nothing,” he said. “This is a strong commitment imposed on Greece.”
Juncker declined to say what form the financial support to Greece would take, although he did explicitly rule out the use of eurozone bonds. “We will decide on the exact measure or instrument to be used when this situation will have to be addressed,” he said. “We hope this situation will never have to be addressed,” he added.
The statement issued by EU leaders, in full
All euro area members must conduct sound national policies in line with the agreed rules. They have a shared responsibility for the economic and financial stability in the area.
In this context, we fully support the efforts of the Greek government and their commitment to do whatever is necessary, including adopting additional measures to ensure that the ambitious targets set in the stability programme for 2010 and the following years are met. We call on the Greek government to implement all these measures in a rigorous and determined manner to effectively reduce the budgetary deficit by 4% in 2010.
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We invite the Ecofin Council to adopt at its meeting of 16 February the recommendations to Greece based on the Commission’s proposal and the additional measures Greece has announced.
The Commission will closely monitor the implementation of the recommendations in liaison with the European Central Bank and will propose needed additional measures, drawing on the expertise of the International Monetary Fund. A first assessment will be done in March.
Euro area member states will take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole. The Greek government has not requested any financial support.
“The instruments have to be brought into line with national legislation. All members of the euro area will be brought in line with these instruments,” Juncker said.
Greece’s problems – and the threat that they might spread – dominated discussion at the informal summit, which had initially been called by Herman Van Rompuy, the president of the European Council, to discuss Europe’s longer-term economic problems.
In the event, the start of the Council meeting at the Bibliothèque Solvay was delayed while talks went on between Van Rompuy, Barroso, Merkel, Nicolas Sarkozy, France’s president, and George Papandreou, Greece’s prime minister.
Jean-Claude Trichet, the president of the European Central Bank, Juncker and José Luis Rodríguez Zapatero, the prime minister of Spain, which currently holds the rotating presidency of the Council of Ministers, also attended the morning talks.
A statement was drawn up, which was put by Van Rompuy to the other national leaders at the start of their meeting. It was unanimously endorsed and Van Rompuy then read it to the television cameras waiting outside (see box)
Papandreou promised his counterparts that Greece’s budget deficit would be reduced by 4% by the end of this year. It currently stands at 12.7% of gross domestic product. Papandreou has launched wide-scale austerity measures including cuts to civil service pay and pensions.
Papandreou said that Greece would “do anything that is necessary” to fulfil a target to reduce the budget deficit by 4% this year.
“Europe has made an important step to stabilize whenever necessary the eurozone… [this is] a welcome sign for the political will that Europe has to move forward as a union.” He added that EU leaders had not decided the details of such a mechanism.
Both Sarkozy and Merkel stressed the importance of the monitoring of Greece’s progress. The next report will be in March. Officials from the International Monetary Fund will help the European Commission and the European Central Bank to “closely monitor the implementation” of the Greek plan. A first review is planned for March. “You can count on our permanent alertness in this respect,” said Trichet.
“Greece has requested technical advice, the technical support from the IMF. We haven’t required any economic support from the IMF, ” Papandreou said.
Greece’s problems have also been creating difficulties for other countries of the eurozone with stretched public finances, particularly Spain and Portugal. Zapatero said his nation’s economy was “solvent and strong”.