HOW THE WEEK UNFOLDED:WHEN EUROPE at last spoke yesterday in response to the Greek debt crisis, its voice was barely audible.
Addressing reporters outside a library in Brussels, Herman Van Rompuy, European Council president – the man entrusted with projecting the bloc’s voice on the world stage – was forced to repeat mumbled support for Athens. “Perhaps I need to rehearse,” Mr Van Rompuy said of his performance.
Based on events over the past week, some might argue the EU’s leadership as a whole needs practice in crisis management, following frantic diplomacy over whether – and then how – to help Greece.
A turning point in the saga came on Wednesday, when the euro zone’s 16 finance ministers held an emergency video conference in which they coalesced around the two planks of yesterday’s political declaration – that member states would support Greece, and that its government, in turn, must do everything possible to restore its finances. “That was a very important moment,” one European diplomat said.
The seeds for that agreement were planted nearly a week earlier at a Franco-German summit in Paris. It was during that meeting last Thursday that, according to officials, French president Nicolas Sarkozy pressed Angela Merkel, the German chancellor, on the need to come up with an unambiguous message in support of Greece in order to quell market turmoil.
Ms Merkel was troubled by the prospect of any rescue that would offer a “blank cheque” to an allegedly profligate Greek government. She repeatedly insisted that Greece should make more promises to slash its budget, apparently unconvinced by reforms promised by Greek prime minister George Papandreou to the European Commission.
Berlin was also concerned that any support for Greece might set the stage for even larger bail-outs for Portugal and Spain. “Our main problem with the whole idea was less the potential cost – helping the Greeks won’t cost that much – but allowing the precedent to be set,” a senior German official said.
As European leaders appeared to dither, market worries intensified. Greek bond spreads pushed wider, and hedge funds piled up bets against the euro.
With fear of contagion spreading, María Salgado, the Spanish finance minister, jetted to London to meet bondholders in an emergency charm offensive.
On Tuesday, seeking to reassure investors and European leaders, Mr Papandreou and George Papaconstantinou, his finance minister, announced more reforms. “We are in the process of clawing back lost credibility,” Mr Papaconstantinou assured.
In a flurry of telephone diplomacy, Mr Sarkozy tried to broker a deal with Ms Merkel, Mr Papandreou and Mr Van Rompuy on Wednesday afternoon, to no avail. It took a last-minute meeting between the four yesterday morning, hours before the EU’s special summit in Brussels, to hammer out an acceptable compromise. – (Copyright The Financial Times Limited 2010)
