U.S. treasury secretary says Europe will do more to fix debt crisis
ATHENS, Greece - International pressure grew on Europe to find a lasting solution to the debt crisis that is shaking global financial markets, as the leaders of Greece, Germany and France were to hold talks Wednesday in an emergency teleconference.
U.S. Treasury Secretary Timothy Geithner said Europe's leaders know they've "been behind the curve" but he also sought to soothe investors, claiming the eurozone governments understood the severity of the situation and have the financial firepower "to do what it takes to hold this thing together."
Fears that Greece was heading rapidly towards a chaotic default have roiled markets for days, both across the 17-nation eurozone and globally.
Many investors are convinced Greece will not be able to fix its public finances under its current economic plans. Interest rates on the country's 10-year government bonds soared to new record highs hitting the alarming level of 25.3 per cent on Wednesday, more than 23 points higher than the German equivalent.
German Chancellor Angela Merkel spoke out this week to calm the market jitters and to distance herself from her vice chancellor, Philipp Roesler, and others who suggested a Greek bankruptcy was possible.
Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou will discuss the situation Wednesday evening, after a government meeting Papandreou called to address urgent fiscal reforms. The finance ministers from the wider 17-nation eurozone will meet on Friday in Poland.
Hours before the teleconference, Sarkozy and his prime minister "with a single voice reaffirmed France's determination to put everything in place to save Greece," French government spokeswoman Valerie Pecresse said of a Cabinet meeting in Paris.
Sarkozy wants the call to focus on "the need for efforts in return and commitment from Greece," she said.
Europe's big trading partners, like the U.S. and China, made clear that they want the crisis contained.
Geithner, who will join eurozone finance ministers this weekend in a meeting in Poland, stressed that European governments have to show they "stand behind" the financial system so that it can fund and finance the economic recovery.
"I think they recognize that they're going to have to do more to earn the confidence of the world," Geithner said in an interview with American news channel CNBC.
As Treasury chief and previously in his role as head of the New York Federal Reserve , Geithner has been central in the U.S. response to the financial crisis that flared up after the collapse of Lehman Brothers investment bank in 2008.
He dismissed suggestions Europe was about to have its own Lehman moment. "Europe has a tradition of much more indulgence, support for their institutions. ... there is no chance that the major countries of Europe will let their institutions be at risk," he said.
China's Preim Minister Wen Jiabao said European countries needed to tackle their debt problems and make changes to help restore global financial stability and steady economic growth. Beijing has shown interest in helping financially troubled European countries by investing or buying their bonds.
"Countries must first put their own house in order," Wen said.
It was unclear whether there would be statements after Wednesday's teleconference from any of the three countries involved. Indications as to how the talks went would likely affect markets.
Roesler said Germany would deliver a "clear signal to the Greek government" that it must push ahead with reforms, including an ambitious privatization program that has lagged far behind targets.
Speaking during a visit to Rome , Roesler said it was "fundamentally important to re-establish the strength of the Greek state." He said he planned to go to Greece with a delegation of German industrialists to see what investments could be made to help the Greek economy.
Traders hoped that some form of new support would emerge from the talks, pushing Greek shares higher. The main Athens index outperformed its counterparts in Europe, closing up 1.67 per cent.
Some analysts were more skeptical, however.
"I could only see (the teleconference) having a damage-limitation objective because there have been too many rumours ... as to what Germany or what our European partners are thinking about Greece," said economist Vangelis Agapitos.
The main fear of a Greek bankruptcy is that it could destabilize other financially troubled European countries such as Portugal, Ireland, Spain or Italy. It would also have a knock-on effect on banks, many of which are large holders of Greek government bonds. Moody's on Wednesday downgraded the credit ratings of two French banks, Societe Generale and Credit Agricole.
"We are confronted with the most serious challenge of a generation. This is a fight for the jobs and prosperity of families in all our member states," European Union Commission President Jose Manuel Barroso told the European Parliament in Strasbourg, France. "This is a fight for the economic and political future of Europe. This is a fight for what Europe represents in the world. This is a fight for European integration itself."
Greece relies on funds from last year's euro110 billion ($150 billion) international bailout. But the lifeline could be cut if the country continues to miss fiscal and reform targets.
The quarterly payout depends on reviews by Greece's international debt inspectors — the European Commission , European Central Bank and International Monetary Fund, known as the troika.
The next batch, worth euro8 billion, is due in late September , but there were fears the troika would not approve its disbursement after the debt inspectors suspended their review earlier this month. They are due to return to Athens in coming days. Without the next installment, the country has enough cash to keep it going only until mid-October.
Greece's government spokesman, Elias Mossialos, said Monday he believed the country would receive the funds.
In July, Greece was granted a second, euro109 billion rescue package, but the terms of that deal have yet to be finalized, with Finland asking for extra collateral guarantees.