Wednesday

10th Aug 2022

EU leaders under pressure to reach Greek deal at summit

  • The Greek leader (c) flanked by the German Chancellor (l) and French President in Brussels (Photo: consilium.europa.eu)

EU leaders are under intense pressure to come up with a solution to Greece's ongoing debt dilemma when they meet in Brussels on Thursday (25 March), with hopes of a possible deal resting squarely on the shoulders of Germany's Angela Merkel.

Public disagreement between the leaders has broken out since their last meeting over a month ago, with much of the acrimony focusing on the potential role of the International Monetary Fund, a move that would be unprecedented in eurozone history.

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Faced with a German public largely opposed to providing aid to Greece, Ms Merkel says the Washington-based fund should play a "substantial" part in any bail-out, with policymakers suggesting support is also likely to come from a number of eurozone members in the form of bilateral loans.

But the German chancellor has shown deep reluctance to agree to an aid mechanism until absolutely necessary, concerned that Athens could could subsequently take its foot off the pedal in implementing the raft of recently announced austerity measures.

The Greek government has argued that agreement on a support mechanism would help calm market doubts, and lower the countries high borrowing costs, as it labours under a €300 billion debt pile and 12.7 percent of GDP deficit.

The European Commission, on the other hand, has called for a quick solution to help stabilise the region, with the EU institutions and other eurozone states favouring predominantly European support for its overspending partner. Any rescue "needs to be European-led", said economy commissioner Olli Rehn this week.

Ongoing euro area turmoil was highlighted on Wednesday when Portugal had its credit rating cut by Fitch, causing the euro to slide to a 10-month low against the dollar and Greek and Portuguese bond yields to shoot up.

Despite this however, discussion on how to resolve the Greek situation is not formally on the agenda of the EU leaders' meeting.

France, Spain and European Council permanent President Herman Van Rompuy are all pushing for a separate meeting of euro area leaders on Thursday in order to agree on a rescue mechanism for Greece, with officials suggesting it could take place in the evening after the 27 leaders finish dinner.

France appeared to soften its opposition to an IMF financing role on Wednesday, increasing the chances of an agreement, although the ECB revoiced concerns that the move could undermine the euro.

"If the IMF steps in, the image of the euro would be that of a currency that is able to survive only with the external support of an international organisation," said Lorenzo Bini Smaghi, an executive board member of the Frankfurt-based bank.

2020

As the tussle continues, the Greek issue threatens to overshadow discussion on the EU's new 10-year economic plan, the main topic on Thursday's formal agenda.

Earlier this month, the commission came forward with a communication on the subject, outline five headline economic targets to put Europe on a path of sustainable growth.

But here too disagreements have emerged, with a number of member states unhappy with the proposed targets for poverty reduction, greater education levels and three percent of GDP spending on research and development.

"The 2020 could potentially be the key to get us out of the crisis," Fabian Zuleeg, chief economist with the the European Policy Centre, a Brussels-based think-tank, told EUobserver on Wednesday. "But we do need to see more ambition coming from somewhere."

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