European leaders pressed Greece to uphold the terms of a five-day-old bailout in a bid to stop the deal unraveling on the eve of a global summit, after Prime Minister George Papandreou said he’d put the plan to a referendum.
German Chancellor Angela Merkel and French President Nicolas Sarkozy held emergency talks on Greece today and called on Europe to implement the package of measures thrashed out in Brussels last week.
The referendum proposal “surprised all of Europe,” Sarkozy told reporters in Paris. “The plan adopted unanimously by the 17 members of the euro area last Thursday is the only possible way to resolve the problem of Greek debt.”
The plan, designed to aid Greece and stem the wider debt crisis, is “more necessary than ever today,” Merkel and Sarkozy said in a joint statement issued in Berlin and Paris. Germany and France “are convinced that this agreement allows Greece to return to lasting growth” and want to draw up a road map for locking in the second Greek bailout.
Italian Prime Minister Silvio Berlusconi separately called an emergency meeting with ministers tonight in Rome to discuss austerity measures after Italy’s 10-year borrowing costs climbed to the highest levels relative to German bunds since before the creation of the euro.
Papandreou’s unexpected announcement that he will hold a confidence vote and referendum threatens to overshadow a Nov. 3-4 Group of 20 summit in Cannes, France. European leaders had designated the talks as a stage to present their plan to stamp out the crisis and end the threat to the global economy.
Crisis talks will in effect start the meeting one day early, as Merkel and Sarkozy are due to meet with European officials and International Monetary Fund representatives in Cannes tomorrow, according to their joint statement. Papandreou, whose country is not a G-20 member, will also travel to the French resort tomorrow, a Greek official said. He will then speak in the Greek parliament Nov. 3 during the vote of confidence.
“We fully trust that Greece will honor the commitments undertaken in relation to the euro area and the international community,” European Council President Herman Van Rompuy and European Commission President Jose Barroso said in a joint e-mailed statement that acknowledged Greece’s move.
EU officials had hoped to use the Oct. 27 rescue agreement, which includes renewed commitments to fiscal austerity as well as new rescue resources, to anchor their economic agenda at the G-20 summit. Now, officials meeting as the confidence vote plays out in Athens will be called on to assess the deal’s -- and the euro’s -- future, especially if Papandreou’s government falls and Greece comes under more pressure to default or leave the common currency.
“Uncertainty and fear is palpable,” Marc Chandler, chief currency strategist at Brown Brothers Harriman in New York, said by e-mail. “The political cost of the economic austerity does not appear fully appreciated by policy makers or investors.”
Sarkozy was due to meet with Prime Minister Francois Fillon, Finance Minister Francois Baroin, Budget Minister Valerie Pecresse and Bank of France Governor Christian Noyer at 5 p.m. today to discuss Greece. Le Monde newspaper, citing unnamed people close to Sarkozy, said that he was “dismayed” by the Greek plan.
The Greek prime minister’s personal and government popularity have plunged as cost-cutting measures have sparked a wave of social unrest. The Greek leader announced a confidence vote yesterday that will conclude late on Nov. 4. The referendum would probably be held after the details of the European accord are worked out.
European leaders agreed to boost the European Financial Stability Facility’s firepower to 1 trillion euros ($1.4 trillion), set aside 100 billion euros for Greece and provide 30 billion euros in collateral for a debt swap that will give Greece’s investors new, lower-risk bonds at 50% of the existing bonds’ face value.
The Institute of International Finance, a Washington-based banking group that took part in the debt swap negotiations, affirmed its commitment to the Oct. 27 agreement. “We will work closely with the Greek authorities, euro-area officials and other relevant parties to agree on, finalize and move toward implementation of the details of the voluntary private-sector involvement,” the IIF said in an e-mailed statement today.
The deal to reduce Greece’s debt load will do nothing to aid the country’s recovery from recession, opposition New Democracy leader Antonis Samaras said on Oct. 27. Papandreou’s majority meanwhile slipped to two today amid a party rebellion.
Whether the EU’s plan would succeed “was a matter for debate. But at least there was a plan,” Yiannis Koutelidakis of Fathom Financial Consulting in London, said in a note. “The risks engendered by this move are profound for the euro in general, not just for Greece as the expulsion of any one member state would critically undermine the Economic and Monetary Union.”
EU officials are now delving into the logistics of how to execute the new plan, such as the precise terms of the debt swap and operations under the rescue fund’s expanded scope. Barroso and Van Rompuy said they expect to discuss the debt crisis “in the margins” of the G-20 meetings. They spoke with Papandreou by phone, their statement said. Papandreou spoke with Merkel today, a Greek official said.
Greece’s decision to call a referendum blindsided its European partners and placed another hurdle in the way of efforts to stanch the debt crisis, according to German lawmakers and others monitoring European developments.
The announcement came “out of the blue, it’s surprising, very risky,” Norbert Barthle, the ranking member of Merkel’s Christian Democratic Union on parliament’s budget committee, said in a telephone interview. “There’s an enormous amount at stake. Do we know how the Greek people will treat their government in this referendum? No. We have a new unknown.”