Greece on the skid

“E.U. reaches deal on Greek debt crisis

By Anthony Faiola

Washington Post Foreign Service
Thursday, February 11, 2010; 8:12 AM

ATHENS -- European leaders reached an agreement Thursday on a plan to rescue financially troubled Greece, with Germany and France in particular throwing their collective might behind the Mediterranean nation in a bid to calm fears of a brewing debt crisis in Europe.

Stock markets across Europe rallied on the news, and the euro, which has taken a beating in recent weeks, jumped against the dollar. Details of the agreement were not immediately released, and analysts warned that it remains to be seen whether the deal will be enough to quell longer-term market fears of a debt default in Greece, as well as other weaker members of the euro zone including Portugal and Spain.

The leaders of Germany and France were expected to offer an outline of the agreement later Thursday from Brussels, at the close of a European Union economic summit. The International Monetary Fund is to be asked to offer advice and guidance to Greece as part of the agreement, though it would not be called upon to put up financial assistance -- something Greece's larger partners in the 16-member euro zone view as too embarrassing.

"There is an agreement on the Greek situation," Herman Van Rompuy, the European Union's new president, said. The deal came together after talks early Thursday between Van Rompuy, European Commission President Jose Manuel Barroso, French President Nicolas Sarkozy, German Chancellor Angela Merkel, European Central Bank President Jean-Claude Trichet and Greek Prime Minister George Papandreou.

The move is meant to calm a crisis that has threatened to ignite a debt crisis on the edges of Europe and has raised questions about the stability of the principal European current, the euro. It marks the first time Europe's major economies have been forced to come to the aid of a weaker member-state in the 16-nation eurozone since the launch of the principal European currency 11 years ago.

The rescue, however, appears to be contingent on Greece holding firm to its pledge to dramatically cut its massive 12.7 percent budget deficit by slashing the public sector salaries and raising taxes, measures that have already generated a series of strikes on the streets of Athens.

Merkel told reporters this morning that "Greece won't be left alone but there are rules and these rules must be adhered to. On this basis we will agree on a statement."

Such a deal is considered highly controversial in Germany, where taxpayers have long feared they may be forced to bail out their less fiscally responsible partners in the euro zone.

"You don't help an alcoholic by handling him another bottle," said Frank Schaeffler, a lawmaker from Germany's Free Democratic Party, part of Merkel's ruling coalition government. "We should not get nervous now only because a few Greeks are taking to the streets. If we start helping out Greece today, Spain may be next in line, and so on."