French President Nicolas Sarkozy: EU Must Back Greece or Jeopardize Euro

March 7 (Bloomberg) — French President Nicolas Sarkozy said the European Union must support Greece or risk destroying the euro as Prime Minister George Papandreou heads for Paris to lobby support for the debt-laden country.

“If we created the euro, we cannot let a country fall that is in the eurozone,” said Sarkozy yesterday before a meeting with Papandreou in Paris today. “Otherwise there was no point in creating the euro. We must support Greece because they are making an effort.”

EU leaders have so far refused to give financial aid to Greece and have ordered the government to cut its budget deficit, the EU’s highest, on its own. While Papandreou says steps taken this past week to slash the shortfall warrant more help from the EU, German Foreign Minister Guido Westerwelle said yesterday that his country is “not going to write a blank check.”

Papandreou is visiting Berlin, Paris and Washington after his government passed a 4.8 billion euro ($6.5 billion) austerity package on March 5. A poll published in To Vima newspaper today showed 51.9 percent of voters support him even after the cuts, compared with 47.5 percent who don’t.

Sarkozy, who didn’t say financial support would be forthcoming, will meet Papandreou in the Elysee Palace around 6 p.m. local time. They will brief reporters afterwards.

European Monetary Fund?

German Chancellor Angela Merkel is rebuffing any talk of a rescue even as EU nations are said to be working on a contingency bailout plan for Greece to be funded by member governments. Her finance minister, Wolfgang Schaeuble, told Welt am Sonntag today that officials should work on creating a European organization similar to the International Monetary Fund to prevent a repeat of the crisis.

Papandreou on March 4 announced a package of tax increases and spending cuts that helped the government to sell 5 billion euros of bonds the next day, signaling that its funding crisis has abated for now. The poll in To Vima today showed 47.9 percent of those questioned disagreed overall with the austerity moves, while 46.6 percent approved of it.

A total of 86.9 percent said the measures would provoke social unrest, the poll showed. Asked if they would vote to leave the euro zone and return to using the drachma, 63 percent said they wouldn’t. Kapa Research surveyed 1,044 people on March 4. The margin of error is three percentage points.

Final Resort?

Papandreou is indicating that Greece may still need financial support and is prepared to turn to the IMF if necessary, calling it a “final resort” on March 3.

That prompted a rebuff from European Central Bank President Jean-Claude Trichet a day later because finance officials fret such a move would signal the EU isn’t capable of solving its own problems. Italian Finance Minister Giulio Tremonti is nevertheless refusing to rule out a role for the IMF in any aid package.

“The IMF should act as a bank” in any rescue, he told reporters in Venice yesterday. “We finance the IMF so it can use the funds around the world. Why not use that capital with the IMF acting as a bank with its know-how?”

Tremonti also said that the EU could issue “eurobonds” or coordinate the sale of euro-denominated government bonds to better counter “financial speculation.”

As Greece calls for more help, Merkel on March 5 turned her focus to restricting the use of derivatives to halt “speculators” from exploiting countries’ budget deficits. Greece has done its work and Europe and the U.S. must now ensure that financial-market speculators aren’t allowed to inflict further damage on Greece or on other countries, she said.

Neighbor’s House

“Credit-default swaps, where you insure your neighbor’s house just to destroy it and make money from it, that’s exactly what we have to curb,” Merkel said at a joint press conference in Berlin yesterday with Papandreou.

The Greek prime minister said he will fight to ensure speculators don’t undermine his push to restore order to the country’s economy. It’s unjust and undemocratic that his efforts are being undermined “by some ‘kids’ in New York and elsewhere sitting in front of a computer,” he said yesterday.

To contact the reporters on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net

Last Updated: March 7, 2010 06:51 EST
By John Fraher and Lorenzo Totaro

Source: Bloomberg

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