EU leaders have pledged to provide exceptional financial support to Greece, clearing the way for it to receive emergency loans to surmount its budget difficulties.
The explicit pledge to intervene “if needed” marks the first time since the euro’s introduction in 1999 that EU leaders have raised the prospect of a bailout for a country in the single currency system.
The declaration was designed to draw a line under the speculative attacks on Greece, which have pushed up its borrowing costs and led to fears of disruption in the single currency area at large. It follows fresh pressure on Spain and Portugal over their budget deficits.
However, the response from markets to the failure to set out specific support measures or a timeline for their deployment was muted. Although global stocks and bonds made modest gains, the euro shrugged off initial gains to fall 0.9 per cent against the dollar.
On Monday night European finance ministers will discuss the nature of any intervention and the conditions that would accompany it. Such conditions are very likely to be tough, given that European leaders do not want to encourage other countries to follow Greece.
Following protests in Greece at the severe austerity measures already in place, this aspect of the talks will be politically delicate.
Sources briefed on the discussions between finance ministers said the provision of bilateral loans, probably from Germany and France, in an action co-ordinated by the EU was the most likely form of support.
A wider multilateral initiative – with assistance coming from a large number of euro zone members – is also on the table.
“It could be voluntary loans from member states. That seems to be the best option,” Polish prime minister Donald Tusk said.
Some sources believe the broad outline of the plan could be agreed by Tuesday. At a briefing yesterday, however, Taoiseach Brian Cowen said that EU leaders did not debate in detail what specific measures might be taken to support Greece.
“The statement was issued and agreed, there was no detailed discussion,” he said.
The decision to offer conditional assistance to Greece follows weeks of pressure on the country over concern that it might default on its debt, fanning fears that other euro zone countries such as Spain and Portugal would come under similar pressure.
It also represents a tacit admission by EU leaders that previous efforts to contain the financial emergency in Greece have not worked. Only last week, the European Commission threatened to impose stringent new austerity measures on the country if its current budget plan misfires.
The threat failed to dampen fears about the country’s prospects, whose rising borrowing costs have led to pressure on the borrowing costs of other debt-dependent states, Ireland among them.
“Euro area member states will take determined and co-ordinated action, if needed, to safeguard financial stability in the euro area as a whole,” said yesterday’s statement from EU leaders. “The Greek government has not requested any financial support.”
The statement was read to journalists by European Council president Herman Van Rompuy at the outset of an economic summit in Brussels at which EU leaders gathered to discuss a new economic plan for the union.
“It’s a political message that we wanted to send out,” Mr Van Rompuy told reporters in Brussels.
“The Greek government will take the responsibility for cleaning up its public finances.”
In their statement, the EU leaders urged Greek prime minister George Papandreou to implement austerity measures already agreed “in a rigorous and determined manner.”
Mr Cowen downplayed the prospect of an emergency intervention, declining to answer questions about the implications of any Greek bailout for the euro zone and its members.
Fear of contagion led EU to waive rules for Greece: page 14; Editorial comment: page 15; reports: Business This Week