Almunia Says EU Ready to Assist Greece in Budget Plan (Update1)
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By John Fraher and Kevin Costelloe
Dec. 9 (Bloomberg) -- The European Union’s economic affairs commissioner said officials are ready to help Greece get to grips with its budget deficit after concerns about its public finances sparked a rout in Greek government bonds.
The European Commission “stands ready to assist the Greek government in setting out the comprehensive consolidation and reform program, in the framework of the treaty provisions for euro-area member states,” said Joaquin Almunia, who is in charge of economic and monetary affairs, in a statement late yesterday. He didn’t say what form any assistance could take.
Greek stocks and bonds tumbled yesterday after Fitch Ratings cut its rating on government debt to BBB+ and two other major ratings companies are threatening to follow suit. Greece, the lowest-rated country in the euro region, is struggling to cut a budget deficit of 12.7 percent.
The benchmark Athens Stock Exchange General Index dropped as much as 6.1 percent, its biggest intraday decline since Nov. 26. The spread between the Greek and German 10-year benchmark bonds widened to 221 basis points from 130 basis points on Oct. 5. That compares with 23 basis points for Finnish 10-year bonds.
Almunia’s comments come as investors debate whether EU governments would bail out Greece if it was unable to pay its bills. Former German Finance Minister Peer Steinbrueck said in February that euro members would “in reality” rescue states in difficulty. Almunia said yesterday that Greece “is a matter of common concern” for euro nations, echoing language he has used since November. He didn’t elaborate further.
No Bailouts?
At the same time, the worst financial crisis since the Great Depression has abated since February and European governments have made no effort to elaborate how a bailout would happen in practice.
“In today’s markets, the risk of using Greece as a showcase of the ‘no bailout clause’ is too dangerous,” said Wim Boonstra, chief economist at Rabobank Nederland. “In the current situation it’s in the interests of the other countries that Greece does not fail.”
Greek Finance Minister George Papaconstantinou said today that the country will not seek an EU aid package and there is “absolutely” no risk it will default on its debt. “We’re moving swiftly to reassure citizens and markets that we’re moving in the right direction,” Papaconstantinou said today in an interview with Bloomberg Television.
‘Fair’ Consolidation
The finance minister said yesterday that his government, which came to power in October promising higher spending and wages, will cut the budget deficit in a “fair” consolidation of public finances.
That’s not enough for some European finance officials, who are increasing pressure on Greece government to take lasting measures to reduce the deficit.
“The situation in Greece is very difficult,” European Central Bank President Jean-Claude Trichet said on Dec. 7. “We all know the figures, and we all know the very important, courageous decisions that have to be taken to put the situation back on track.”
Greece can expect a bail out from the ECB “only at a price,” said Willem Buiter, the former Bank of England official who will join Citigroup Inc. as its chief economist next month.
“They’ll probably go to the IMF, have a credible standby program and then aid from Brussels and bilateral aid from selected sovereign governments in Europe and the U.S. will be available,” Buiter said in a Bloomberg Television interview. “We could see the first all EU-15 sovereign default since Germany had it in 1948.”
Almunia said yesterday that “the commission will continue to monitor the situation in Greece very closely.”
To contact the reporters on this story: John Fraher in London at jfraher@bloomberg.net; Kevin Costelloe in Brussels at kcostelloe@bloomberg.net.
Last Updated: December 9, 2009 04:18 EST
