Statement by the heads of state of the eurozone, Brussels 7 May 2010
Saturday, 8 May 2010 | 
European Affairs
1/ Implementation of the support package for Greece
In February and in March, we committed to take determined and coordinated action to safeguard financial stability in the euro area as a whole.
Following the request by the Greek government on April 23 and the agreement reached by the Eurogroup on May 2, we will provide Greece with 80 billion euros in a joint package with the IMF of 110 billion euros. Greece will receive a first disbursement in the coming days, before May 19.
The programme adopted by the Greek government is ambitious and realistic. It addresses the grave fiscal imbalances, will make the economy more competitive, and will create the basis for stronger and more sustainable growth and job creation.
The Greek Prime Minister has reiterated the total commitment of the Greek government to the full implementation of these vital reforms.
The decisions we are taking reflect the principles of responsibility and solidarity, enshrined in the Lisbon Treaty, which are at the core of the monetary union.
2/ Response to the current crisis
In the current crisis, we reaffirm our commitment to ensure the stability, unity and integrity of the euro area. All the institutions of the euro area (Council, Commission, ECB) as well as all euro area Member States agree to use the full range of means available to ensure the stability of the euro area.
Today, we agreed on the following :
- First, consolidation of public finances is a priority for all of us and we will take all measures needed to meet our fiscal targets this year and in the years ahead in line with excessive deficit procedures. Each one of us is ready, depending on the situation of his country, to take the necessary measures to accelerate consolidation and to ensure the sustainability of public finances. The situation will be reviewed by the Ecofin Council on the basis of a Commission assessment by the end of June at the latest. We have asked the Commission and the Council to strictly enforce the recommendations addressed to Member States under the Stability and Growth Pact.
- Second, we fully support the ECB in its action to ensure the stability of the euro area.
- Third, taking into account the exceptional circumstances, the Commission will propose a European stabilization mechanism to preserve financial stability in Europe. It will be submitted for decision to an extraordinary ECOFIN meeting that the Spanish presidency will convene this Sunday May 9th.
3/ Strenghtening economic governance
We have decided to strengthen the governance of the euro area. In the context of the Task Force headed by the President of the European Council, we are prepared to :
- broaden and strengthen economic surveillance and policy coordination in the euro area, including by paying close attention to debt levels and competitiveness developments;
- reinforce the rules and procedures for surveillance of euro area Member States, including through a strengthening of the Stability and Growth Pact and more effective sanctions;
- create a robust framework for crisis management, respecting the principle of Member States' own budgetary responsibility.
The President of the European Council decided to accelerate the work of the Task Force. The Commission will present its proposals next week on May 12.
4/ Regulation of the financial markets and the fight against speculation
Finally, we agreed that the current market turmoil highlights the need to make rapid progress on financial markets regulation and supervision. Increasing transparency and supervision in derivatives markets and dealing with the role of rating agencies are among the key priorities for the EU. We also agreed on intensifying the work on crisis management and resolution in the financial sector and on a fair and substantial contribution of the financial sector to the costs of crises. The work on assessing whether more steps are necessary in view of recent speculation against sovereign debtors should be sped up. The President of the European Council therefore intends to discuss these issues at the June European Council, on the basis, where needed, of Commission proposals.
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EU to Set Up Fund to Prevent Spread of Greek Crisis
European leaders agreed to set up an emergency fund to halt the spread of Greece’s fiscal woes, seeking to prevent a sovereign debt crisis from shattering confidence in the 11-year-old euro. Jolted into action by the sliding currency and soaring bond yields in Portugal and Spain, leaders of the 16 euro countries said the workings of the financial backstop will be hammered out before Asian markets open late tomorrow European time. “We will defend the euro, whatever it takes,” European Commission President Jose Barroso told reporters early today after the leaders met in Brussels. Europe’s failure to contain Greece’s fiscal crisis triggered a 4.3 percent drop in the euro this week, the biggest weekly decline since October 2008. And it prompted the U.S. and Asia to rally around in a bid to prevent a global sovereign-debt crisis from pitching the world back into a recession. “Europe is getting its act together,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Time will tell if this statement is enough to satisfy the European bond market vigilantes.” European officials declined to disclose the size of the stabilization fund, to be made up of money borrowed by the European Union’s central authorities with guarantees by national governments. Finance ministers will meet at 3 p.m. tomorrow in Brussels to flesh out the details. A press briefing is scheduled for 6 p.m.
‘That’s Significant’
“When the markets re-open Monday, we will have in place a mechanism to defend the euro,” French President Nicolas Sarkozy said. “If you don’t think that’s significant, you haven’t been to many EU summits.” Barroso said he wouldn’t push the independent European Central Bank to, for example, buy government bonds. ECB President Jean-Claude Trichet accelerated the market selloff on May 6 by rejecting that measure. With the euro facing its stiffest test since its debut in 1999, the summit -- called to discuss efforts to coordinate economic policies -- turned into a crisis-management session that dragged past midnight. The euro slid to $1.2715 from $1.3293 during the week, and is down 15 percent since late November. European stocks sank the most in 18 months, with the Stoxx Europe 600 Index tumbling 8.8 percent to 237.18.
Surging Spreads
The extra yield that investors demand to hold Greek, Portuguese and Spanish debt instead of benchmark German bonds rose to euro-era highs yesterday. The premium on 10-year government bonds jumped as high as 973 basis points for Greece, 354 basis points for Portugal and 173 basis points for Spain. Europe came under pressure on a hastily arranged conference call of Group of Seven finance chiefs yesterday. All agreed on “the need for a clear, timely and strong response,” Canadian Finance Minister Jim Flaherty, who chaired the call, told reporters in Ottawa. “We hope to see a strong, early policy response in Europe.” The spreading contagion also drew the attention of President Barack Obama, who said in Washington that U.S. regulators will examine the “unusual market activity” that on May 6 briefly drove the Dow Jones Industrial Average down by almost 1,000 points, erasing more than $1 trillion in wealth before the market bounced back. “There are impacts on financial markets, including share markets, from the events in Europe and in Greece more specifically,” said Australian Treasurer Wayne Swan, speaking to reporters in Canberra today. “We are urging as speedy a resolution as is possible in the circumstances.”
Merkel’s Call
In Brussels, German Chancellor Angela Merkel stepped up German calls for a closer monitoring of government finances and more rigorous enforcement of the deficit-limitation rules, originally drafted by Germany in the 1990s. Europe will send “a very clear signal against those who want to speculate against the euro,” Merkel said. With the euro region’s overall deficit forecast at 6.6 percent of gross domestic product in 2010 and 6.1 percent in 2011, the vow to bring budget shortfalls back below the euro’s 3 percent limit echoes promises that have been regularly broken ever since governments in 1999 set a three-year deadline for achieving balanced budgets. Plans for a European credit-rating authority are already under consideration at the EU Commission, the bloc’s Brussels- based executive agency. It also is investigating whether ratings companies such as Standard & Poor’s wield too much power over investors’ perceptions of governments.
Restrictions Considered
Asked whether steps to stem speculation against government bonds would include restrictions on short sales or credit default swaps, Barroso said “some of the points you have mentioned will be contemplated.” The political leadership of the $12 trillion economy also signed off on a 110 billion-euro ($140 billion) aid package for Greece negotiated by finance ministers last week. So far nine governments have cleared the way for funds to be sent to Athens. Germany, the biggest contributor with as much as 22.4 billion euros over three years, fell in line yesterday with endorsements in the lower and upper houses of parliament. A group of German academics filed a lawsuit to try to halt the payout. A court today rejected the challenge.
Source: Bloomberg
Euro Zone Leaders Agree on Greek Aid
Euro zone leaders approved emergency loans for Greece on Friday and governments around the world tried to calm markets shaken by fears that Athens' debt crisis could cause turmoil in other European economies. An official from the European Union who spoke with CNBC confirmed the planned "coordinated financial assistance" for Greece. "It's done," another European Union source told Reuters, confirming the leaders of the 16-country single currency group had given their political stamp of approval to an EU-IMF deal to release 110 billion euros ($147 billion) to Greece over three years.
Group of Seven finance ministers discussed the crisis in a conference call after U.S. Federal Reserve officials expressed concern, and President Barack Obama told German Chancellor Angela Merkel by telephone that he backed efforts to rescue Greece. World stocks held near a three-month low, despite strong U.S. jobs data, because of fears that the emergency loans might not be enough to prevent a Greek default. "We agreed on the importance of a strong policy response by the affected countries and a strong financial response from the international community," Obama said. He said regulatory agencies were investigating a sudden drop on U.S. markets on Thursday, which he called "unusual market activity," and would recommend appropriate action. The G7 ministers also agreed to keep a close eye on the markets.
Obama and Merkel spoke before the summit in Brussels at which the euro zone also discussed ways to prevent such crises in the future and to stop any other countries suffering similar problems in the euro zone. "First, we must speed up the regulation of the financial markets. Time is running out, this has to happen quickly," Merkel told reporters in Brussels at a meeting attended by European Central Bank President Jean-Claude Trichet. Merkel, who presides over Europe's largest economy, said she would not rule out reform of treaties to ensure budget rules are toughened. Other EU leaders have resisted such changes and the 27-country bloc has struggled for unity during the crisis.
EU officials said the euro zone leaders were discussing a declaration in which they would demonstrate solidarity with Greece, call for stronger budget discipline and try to show markets they were in control of the situation. "This is a systemic problem. It's a question of the stability of the euro," one EU official quoted Trichet as saying during the meeting, adding that he had called for more efforts to cut budget deficits.
Hours before the meeting, the German parliament approved its share of the Greek rescue, the largest contribution by a euro zone country. The Dutch parliament also approved its part of the deal and Italy's cabinet has given initial approval.
Source: CNBC