EU demands Greece ‘get control’ of deficit

European leaders ordered Greece to get
the bloc’s highest budget deficit under control and promised “determined”
action to staunch the worst crisis in the euro currency’s 11-year history.

The agreement, brokered by German
Chancellor Angela Merkel,
Greek Prime Minister George
Papandreou
and European Central Bank President Jean-Claude
Trichet
, called for closer monitoring of the Greek economy and
stopped short of offering concrete measures to help officials in Athens handle
a debt load exceeding annual economic output. Greek bonds rose and the euro
fell after the deal was announced at a European Union summit.

“It’s a political message that we
wanted to send out today,” EU President Herman Van
Rompuy
told reporters today in Brussels. “This political message has a
responsibility dimension to it. The Greek government is taking on a responsibility.”

“Our European way of life is at
stake,” he said.

The EU leaders’ statement, which
Merkel called a “clear political signal” to Greece, left open how the EU would
respond to a fresh wave of speculative attacks against Greece or countries such
as Spain and Portugal, which are also struggling to cut their budget deficits.
The statement echoes prior calls for Greece to clean up its accounts and
gave the International Monetary Fund a monitoring role.

Euro-region leaders also discussed
the creation of a lending facility for Greece, an EU official said. States
would contribute in proportion to the size of their economies, said the
official in Brussels,
who spoke on condition of anonymity. The official said it’s “not yet time” for
a European bond.

 “Markets seem to be happy that they are doing
something. The problem is if they come out with an ad hoc temporary solution
for Greece then people
wonder what happens when the next country comes into trouble,” said Nick Kounis,
chief European economist at Fortis Bank Nederland NV in Amsterdam. “This whole thing needs to be
institutionalized.”

Greek bonds,
which have plunged since December on concern about the country’s ability to
tackle its deficit, extended a three-day rally, with the yield on the two-year
government bond falling 39 basis points to 5.07 percent as of 4:50 p.m. in Brussels.

The euro weakened 0.9 percent to
$1.3616. Its slide to a nine-month low of $1.3586 on Feb. 5 forced Greece to the
top of the EU agenda out of concern that market turmoil might spread.

The pre-summit statement bore the imprint of Merkel, who as head of Europe’s largest economy, pressed for strict conditions
on any European financial lifeline for countries that spend too much and save
too little.

“Greece won’t be left alone but
there are rules and these rules must be adhered to,” Merkel told reporters. “On
this basis we will agree on a statement.”

Greece,
representing 2.7 percent of the bloc’s $13 trillion economy, posted a budget
deficit of 12.7 percent of gross domestic product in 2009, the highest in the
euro’s 11-year history and more than four times the EU’s 3 percent limit.

Papandreou’s government needs to
sell 53 billion euros ($73 billion) of debt this year, the equivalent of about
20 percent of GDP. Greece’s
credit rating was cut by Standard & Poor’s, Moody’s Investors Service and
Fitch Ratings in December.

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