The European Union's leadership is struggling to control a eurozone crisis that has left Greece unable to raise funds on financial markets and threatened to spread contagion to other parts of the 16-country eurozone.
Herman Van Rompuy, the president of the European Council, yesterday (28 April) called an emergency summit of EU leaders to activate a package of financial assistance for Greece. The International Monetary Fund (IMF) and eurozone members would together provide around loans of €120 billion over the next three years. The meeting is expected to be held on 10 May in Brussels.
Sven Giegold, a German Green MEP and a member of the European Parliament's financial crisis committee, said that the eurozone's slowness in providing financial support to Greece was “jeopardising the future of the euro”.
The decision to hold an emergency meeting came after a fresh bout of market turmoil as fears intensified that Greece would not be able to refinance its debts. Investors drove up yields on Greek loans to record levels, reflecting fears that Greece would be forced to restructure its debts, leaving holders of Greek debts with substantial losses.
Thomas Mayer, chief economist for Deutsche Bank, described the rising yields as an “insolvency death trap”. The more Greece has to pay to convince investors to buy its bonds the less chance it has of reducing its budget deficit which has soared to 13.6% of gross domestic product.
Yields on Greek government bonds soared to above 23% yesterday (28 April). Yields on Portuguese, Spanish, Italian and Irish debt also increased. Greece's difficulties caused significant falls on global stock markets, while the euro yesterday fell to its lowest level against the dollar since April 2009, indicating a loss of market confidence in the single currency.
Timothy Geithner, the US treasury secretary, speaking at a meeting of G20 finance ministers on Friday (23 April) had urged Europe to act decisively to support Greece.
Dominique Strauss-Kahn, the managing director of the International Monetary Fund, and Jean-Claude Trichet, the president of the European Central Bank, took the unprecedented step of directly briefing German parliamentarians on the joint rescue package in Berlin yesterday.
Strauss-Kahn warned that the “stability of the eurozone” was at stake if the loan facility was not activated quickly.
Greece needs to find €8.5bn by 19 May to refinance existing loans. The IMF is expected to provide a first tranche of €8bn-€9bn before then. Other eurozone countries will make bilateral loans available to Greece after completing legal procedures. Germany is expected to provide €8.4bn in loans to Greece this year, but it needs approval from its national parliament to provide a state-backed guarantee for the loan to ensure it has the highest credit rating and the lowest borrowing costs.
Germany is struggling to quell accusations that it has made the crisis worse by delaying triggering the package until after a regional election in North Rhine-Westphalia, Germany's largest federal state, on 9 May.
The state is currently ruled by a coalition of Merkel's Christian Democratic Union (CDU) with the liberal Free Democrats. But support for both parties has fallen recently. Rescuing Greece is very unpopular in Germany, with a recent poll suggesting that 57% of voters were opposed to providing Greece with a loan.
Commission officials have denied that there is a deliberate attempt to delay the package until after the 9 May election.
