European governments signaled a willingness to relent on Greece’s austerity measures as leaders turn from an election victory by Greek bailout proponents to focus on safeguarding the other 98 percent of the euro economy.
Greece’s new government must emerge “swiftly” from yesterday’s contest, which showed pro-bailout New Democracy in a position to form a coalition, euro finance chiefs said in a statement. German Foreign Minister Guido Westerwelle said negotiators could consider giving Greece more time to fix its finances, telling ZDF television that the political gridlock over the past six weeks “has done damage.”
Greece’s international monitors will “return to Athens as soon as a new government is in place to exchange views with the new government on the way forward,” the finance ministers said in the statement. They want “the swift formation of a new Greek government that will take ownership of the adjustment program.”
The election result in the country where the debt crisis began in 2009 paves the way for euro leaders’ fourth make-or-break summit in a year. While Chancellor Angela Merkel warned global leaders last week that Germany rejected what she called quick-fix management of the crisis, a softening of the terms of Greece’s bailout may provide a template for how euro leaders overcome policy differences.
The euro erased a gain against the dollar to trade little changed at $1.2636 as of 9:27 a.m. London time, after strengthening as much as 0.9 percent to $1.2748.
European stocks erased their advance as the yield on Spain’s benchmark 10-year bond climbed to 7 percent, amid fading optimism that Greece’s election will calm the euro sovereign-debt crisis. The Stoxx Europe 600 Index lost 0.2 percent to 243.82 at 9:30 a.m. in London, erasing an earlier rally of as much as 1.1 percent. The gauge has dropped 11 percent from its peak on March 16 on concern that the debt crisis has triggered a slowdown in global economic growth.
The International Monetary Fund, which contributed to Greece’s two rescue packages, said that it is “ready to engage with the new government” to help the country reach its goals “of restoring financial stability, economic growth and jobs,” according to an e-mailed statement.
The Group of Seven nations said in a statement that they were looking forward to working with the next Greek government, “and believe that it is in all our interests for Greece to remain in the euro area while respecting its commitments.”
“It will be tough for the Greek people,” Japanese Finance Minister Jun Azumi told reporters in Los Cabos, Mexico, before a Group of 20 summit. “But by keeping to the plan that they have been building on, I hope they make progress on mending their finances -- by implementing the agreed-upon reforms and receiving outside aid while staying within the euro framework.”
European and world leaders will have a chance to design an improved plan to overcome the two-year-old crisis as leaders including Merkel and French President Francois Hollande convene today at the G-20 summit in Mexico, as well as next week in Rome, before descending on Brussels on June 28.
Amid what Bank of England Governor Mervyn King called a “black cloud” over the world economy, euro chiefs will use the last two weeks of the month to hammer out a plan. Global leaders will probably press Merkel to give ground on her austerity-first policy, as they did at the G-8 summit last month.
After the G-20 gathering, Italian Prime Minister Mario Monti will host a meeting in the Italian capital on June 22 with Merkel, Hollande and Spanish Premier Mariano Rajoy to seek common ground. The three will gauge Germany’s position after Merkel last week said her country’s resources weren’t “infinite” in the “Herculean task” of mastering the debt crisis -- and that jointly issued euro bonds and a euro-wide deposit insurance were a non-starter.
Merkel’s role as leader of Europe’s biggest economy gives her an effective veto on crisis-fighting policy.
“More important than the summit is the gathering of the big four,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., told Bloomberg Television June 15. “They hold the key.”
The anticipation ahead of the next EU summit echoes the expectations that preceded gatherings last July 21, when a second bailout agreement for Greece was outlined; October 26, when bondholders accepted a Greek writedown and the euro rescue fund was beefed up; and Dec. 9, when new budget rules were adopted. None of those steps arrested the crisis.
The Greek vote, a week after Spain said it would seek a 100 billion-euro ($126 billion) rescue for its banks, posed the latest threat to deepen the euro crisis. A victory for Syriza, the party that promised to renege on Greece’s end of the bailout deal, would have stoked speculation the country would exit the euro area.
The tilt away from German-inspired budget-cutting prescriptions that have dominated the crisis response gained further momentum yesterday when Hollande’s Socialist allies took a parliamentary majority in French elections.
Since his election on May 6, Hollande has advocated moving toward euro bonds, echoing a position backed by Merkel’s domestic opposition and EU officials in Brussels. The French president hosted Germany’s opposition Social Democrat leaders last week.
“In the financial circles, few doubt that it makes economic sense to create a deep, liquid and stable market for government bonds with the joint issuance of public debt,” EU Economic and Monetary Affairs Commissioner Olli Rehn said June 15, according to the text of a speech prepared for a Goldman Sachs Group Inc. conference in Brussels that was closed to the press.
The euro’s guardians will also debate a blueprint being devised that may chart the way out of the crisis and toward the full union that Merkel envisions. Drawn up by EU President Herman Van Rompuy, European Commission President Jose Barroso, Luxembourg Prime Minister Jean-Claude Juncker and European Central Bank President Mario Draghi, the plan may echo the euro’s 1989 road map set out by a panel led by then-European Commission President Jacques Delors.
“The important thing as far as we are concerned today is that this report in a sense spelled out a methodology,” Draghi told reporters June 6. “There was a road with dates, deadlines and conditions to be satisfied. I think that is part of the efforts that our leaders and we, ourselves have to draw up today.”