INTERNATIONAL REACTION:EURO ZONE LEADERS' pledges of solidarity with Athens yesterday helped calm financial markets but the storms over Greece's public finance have probably abated only temporarily.

Investors took comfort from assurances that the euro zone’s largest countries – Germany and France – would not allow the crisis in Greece to threaten the stability of the broader euro zone, which was interpreted as meaning financial support would be forthcoming in a worst-case scenario.

However, the lack of specific detail on how any eventual bailout might work and worries about the stability of public finances in other euro-zone countries curbed enthusiasm for the deal thrashed out in Brussels. “The short-term reaction will be one of disappointment. Going into the meeting, market expectations had grown that there would be firmer commitments on the financial side,” said Jacques Cailloux, European economist at Royal Bank of Scotland.

The lack of a stronger market reaction was not necessarily a bad sign, economists said. Greece’s fiscal difficulties did not require a quick fix. The near-term problem faced by the euro zone’s political leaders was contagion – worries about Greece were spreading to other countries, particularly Spain and Portugal, which have also seen public-sector deficits widen.

Athens should not have to tap financial markets for funds on a large scale until the April-May period, when it needs to raise €25 billion to refinance debt and pay off its deficit. After then, it is likely to face several nerve-racking years as it seeks to bring down its public sector deficit to below the 3 per cent of gross domestic product limit set under European Union fiscal rules.

The Brussels plan may have headed off immediate disaster while keeping up the pressure on Greece. The lack of detail may also have helped keep European Central Bank president Jean-Claude Trichet on side. He had argued strongly beforehand that Greece had to be encouraged to help itself. – (Copyright The Financial Times Limited 2010)