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Germany's Chancellor Angela Merkel leaves the European Council building after a Euro Zone leaders summit in Brussels, May 8, 2010. [Agencies] |
Opening the evening summit among visibly tense dinner partners, Sarkozy and European Commission President Jose Manuel Barroso insisted the crisis now had gone beyond Greece itself and affected the very roots of the currency.
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Germany's Chancellor Angela Merkel leaves the European Council building after a Euro Zone leaders summit in Brussels, May 8, 2010. [Agencies] |
Canadian Finance Minister Jim Flaherty chaired a G-7 telephone conference of finance minister and central bankers on the Greek debt situation and he urged European countries to move quickly with a strong response.
"The sooner the better," said Flaherty, who declined to talk about the details of the talks. "The key is that we move toward a resolution. This has to be resolved. It cannot go on indefinitely."
Flaherty said discussions are continuing and he expects there will be further discussion this weekend.
"Every one understands the need for a clear, timely and strong response," Flaherty said.
The euro has rules to stop governments from undermining it with reckless spending, limiting deficits to 3 percent of gross domestic product. Those rules were shown to lack teeth when even big countries such as Germany and France broke them for years without serious consequences.
Merkel, whose country holds the key to any solution, spoke Friday with President Barack Obama, who said he supported the effort to deal with the financial crisis in Europe.
They said the bailout should keep the problem from spreading to other countries by giving Greece three years of support and preventing a default when it has to pay euro8.5 billion in bonds coming due May 19. All leaders confirmed the support for Greece, and Sarkozy said the money would arrive on time.
"We are determined to move forward. But there is unprecedented volatility throughout the world, in the world economy," said Greek Prime Minister George Papandreou.
So far, the markets have taken little heed of leader's reassurances. Stocks, Greek bonds and the euro plunged even after the head of the European Central Bank, Jean-Claude Trichet, tersely underlined that "Portugal is not Greece. Spain is not Greece" on Thursday. The euro fell to $1.2520, its lowest in 14 months, but recovered to $1.2721 later.
Along with the eurozone meeting, the G-7 finance ministers were holding a teleconference Friday on the crisis.
After struggling to get ahead of the crisis for weeks, European governments are now underlining their determination to act by speeding approval of their contributions to the a euro110 billion ($140 billion) emergency loan package for Athens.
The consequences of failure could be dire.
Many economists think Greece will eventually default anyway, which could deal a sharp blow to the euro and lead to sharply higher borrowing costs for other indebted countries in Europe.
Default, or market contagion to other countries could lead to panic, intimidating consumers from spending and making banks fearful to lend money to businesses and consumers.
In Germany, where bailing Greece out is unpopular, both houses of parliament approved the package Friday and sent it to President Horst Koehler for his signature. With Italy and France, that accounts for over two-thirds of the European part of the bailout package. The International Monetary Funds adds euro30 billion on its own.
Greek lawmakers approved drastic austerity cuts Thursday worth about euro30 billion ($38.18 billion) through 2012 - that will slash pensions and civil servants' pay and further hike consumer taxes. The measures were a prerequisite needed to secure international rescue loans.
European stocks fell but recovered most of their losses by early afternoon Friday. But in early action in New York, traders looked past a surprisingly strong report on the U.S. jobs market and focused instead on Europe's spreading debt crisis. The Dow fell 139.89 points, or 1.33 percent, to 10,380.43.