News that negotiators may okay package for debt-laden nation soon boosts financial markets
BRUSSELS: Hopes that a bailout plan for debt-stricken Greece would be finalised soon gave financial markets some welcome respite yesterday.
European and German officials assured markets that they were working quickly on approving the bailout as they tried to keep Greece's crisis from dragging others into a continent-wide financial meltdown.
Germany's largest opposition party said it would move quickly to approve German participation, while European Union Monetary Affairs Commissioner Olli Rehn said yesterday he was 'confident the talks will be concluded in the next days'.
He said negotiators from the EU, the European Central Bank (ECB) and the International Monetary Fund (IMF) were 'working day and night' and were nearing an agreement on 'a multi-annual programme' that will include major changes in Greece.
However, Mr Rehn said he still could not provide details of the deal. He said the financial lifeline was being put together to avoid a wider crisis and was 'for every euro area member state and their citizens, to safeguard the financial stability in Europe and globally'.
Mr Rehn's appearance at the European Commission's daily news briefing was scheduled at the last minute and appeared designed to reassure financial markets that the money will come through and a Greek government debt default was not on the cards. Markets had been in turmoil the last few days as the seemingly never-ending Greek crisis threatened to drag countries like Portugal and Spain into the mire.
'Rehn's appearance means that we expect this deal to be wrapped up on the weekend,' said an EU official who asked not to be named.
Greece says it needs a bailout in order to pay €8.5 billion (S$15.4 billion) in bonds due on May 19. Mounting fears that Germany might hold up its share of the overall €45 billion bailout package agreed earlier this month was the catalyst to this week's market turmoil.
Europe's debt crisis ratcheted up a notch or two this week when Standard & Poor's downgraded Greece to junk status and cut its ratings on Portugal and much larger Spain.
As global stock markets plunged and the euro dived to a one-year low against the US dollar, the powers that be were finally mobilised into action, culminating in a meeting in Berlin on Wednesday between German Chancellor Angela Merkel, IMF managing director Dominique Strauss- Kahn and ECB president Jean-Claude Trichet.
The consensus in the markets is that a much more extensive package will be offered to Greece than the original one-year €45 billion deal agreed. This has helped to shore up confidence in the markets and Europe's main stock indexes advanced yesterday while the euro has clambered off its recent lows.
Many investors now think that a three-year €120 billion deal may be in the offing.
Greek stocks rallied yesterday after Mr Rehn's comments, with bank stocks heading for their biggest one-day rise on record. The Athens bourse's banking index was up 13.9 per cent in afternoon trading.
Meanwhile, union officials in Greece said yesterday that the country will impose steeper salary cuts and new austerity measures to clinch the aid deal and avoid default. They vowed to protest. Prime Minister George Papandreou met unions to discuss the EU and IMF bailout to prepare the ground for what are set to be unpopular measures.
Source: Straits Times, 30 Apr 2010