The EU yesterday called a summit on the debt crisis in Greece after its credit rating was condemned to “junk” status.
EU President Herman Van Rompuy said leaders from the 16 nations using the single currency would meet in Brussels “by around May 10” to try to agree how to set up a massive rescue operation.
Greece faces a May 19 deadline to repay 9 billion euros (US$12 billion) in maturing debt. The downgrade by US ratings agency Standard & Poor’s (S&P) effectively shuts down its access to private capital.
PHOTO: REUTERS
Speaking in Tokyo, Van Rompuy also said there was “no question” of Greece defaulting, despite turmoil on global markets after the new debt downgrade.
The Greek government railed against the move, but the euro slid against the US dollar while shares and bonds plunged, with fears of the fallout spreading across the eurozone after Portugal also saw its rating slashed by S&P.
Van Rompuy stressed that talks were advancing to enable Greece to tap up to 45 billion euros in loans from EU members and the IMF.
“The negotiations are going on. They are well on track and there is no question about restructuring of the debt,” he said.
Greek Finance Minister George Papaconstantinou accused Europe of dragging its feet over the aid and warned that the May 19 deadline was “crucial.”
“Given our inability to access the markets, by [May 19] the procedure must be complete, agreed, signed and the release of funds initiated from the IMF and our European peers,” Papaconstantinou told lawmakers in Athens.
The S&P downgrade means certain categories of investors, such as pension funds, can no longer buy Greek bonds, but the government is also under intense pressure at home, with the General Workers Confederation announcing a general strike for May 5 against “neo-liberal blackmail” by the EU and IMF.
Despite earlier hesitation, Germany signaled it was ready to step in. German Finance Minister Wolfgang Schaeuble said the rescue plan must be implemented to send a clear signal that Greece would not be allowed to fail.
Germany would be the biggest contributor to the bailout under plans drawn up earlier, with its share rising to some 8.4 billion euros, but public opinion in Europe’s biggest economy is deeply opposed to the proposal.
IMF chief Dominique Strauss-Kahn said there was “no other solution” than a bailout for Greece, despite its “years of reckless overspending,” French daily La Tribune reported.
Like Van Rompuy, European Central Bank chief Jean-Claude Trichet ruled out a debt default by Greece or any other eurozone country, saying that was “out of the question” despite the alarm on financial markets.
The euro, rocked for months by the Greek drama, recovered a touch to US$1.3211 in Tokyo afternoon trade from US$1.3172 in New York late on Tuesday, after earlier plunging to US$1.3168.
On the stock markets, Tokyo dived 2.57 percent, or 287.87 points, to close at 10,924.79, while Sydney lost 1.17 percent, or 57.2 points, to 4,822.8. Hong Kong slumped 1.26 percent by the break, Singapore was down 1.41 percent and Seoul tumbled 1.55 percent.
The London stock market on Tuesday dived 2.61 percent, the Frankfurt DAX sank 2.73 percent and the CAC40 in Paris plunged by 3.82 percent. The Lisbon stock market plunged by 5.36 percent and Athens dived 6 percent.
The yield on benchmark Greek 10-year government bonds — the rate which Greece must pay to borrow fresh funds on financial markets — jumped to a record 9.73 percent, its highest level since Greece joined the eurozone.
Portugal’s ratings downgrade, alongside a weak showing by an Italian bond issue and a 4.19 percent fall in Spanish stocks, raised investor alarm further.
“There is a contagion effect from Greece,” said Estefania Ponte, head of the economy and strategy department at BNP Paribas Fortis in Madrid. “Greece, Portugal and Spain are in the line of fire.”
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