EU LEADERS are battling to damp down the threat of a Greek sovereign default amid warnings from the country’s embattled government that it will run out of cash next month if it does not receive a new bailout loan.
A renewed upsurge of market volatility comes as Greece resumes talks with the EU-IMF troika over new measures to bring its ailing public finances under control.
The increased risk of a Greek default is causing concern in Dublin. Tánaiste Eamon Gilmore said any such development would have an “indirect” impact on Ireland.
“We can say with confidence that ... what happens with Greece doesn’t knock on to Ireland directly but that we would be indirectly affected of course by the impact that that would have on the euro and on the euro zone,” he told reporters on the sidelines of an EU meeting in Brussels.
At the same time, the Tánaiste dismissed a call from European Central Bank executive board member Jürgen Stark for a quicker austerity drive and public sector pay cuts.
Mr Stark’s intervention, in an interview with The Irish Times, was not helpful, Mr Gilmore said.
“We have a difficult job to do, we’re doing it, it’s working, we’re confident it’s going to succeed and that kind of encouragement from the sideline, we don’t need it and it doesn’t help what we have to do.”
Greece’s failure to implement promised reforms has led to warnings from Europe that it will not receive an €8 billion loan due next month. This has stoked fears of a default, with public comments by senior German politicians and media leaks suggesting Berlin is already making contingency plans for such a development.
A German finance ministry official said yesterday that “every ministry examines hypothetical possibilities”.
While Chancellor Angela Merkel dismissed suggestions from her junior coalition partner that the time has come to prepare for a Greek insolvency, markets endured another rocky day yesterday.
Philipp Rösler, economics minister and leader of Dr Merkel’s Free Democrats government partners, said that stabilising the euro in the short term called for a discussion “with no taboos”.
“That, ultimately, includes Greece’s orderly insolvency, if the necessary instruments are available,” he wrote in Die Welt.
The chancellor’s spokesman, Steffen Seibert, declined to comment directly on Mr Rösler’s article, saying that “any further remarks would be guaranteed not to calm the markets”.
However, he dismissed the notion that Greece could be expelled or suspended from the euro zone.
The euro fell to its lowest level against the US dollar since February and its lowest level against the yen for a decade. Markets have been spooked by Mr Stark’s unexpected resignation on Friday. Investors dumped shares in French banks, which have a big exposure to Greek sovereign debt. Shares in Société Générale, BNP Paribas and Crédit Agricole each lost more than 10 per cent yesterday.
The Greek government adopted a new property tax on Sunday night, leading to the resumption of talks with the troika. European Council president Herman Van Rompuy welcomed the measures.
However, Greece’s precarious situation was underlined when deputy finance minister Filippos Sachinidis indicated that the government had enough cash to operate only until next month. “We have definitely manoeuvring space within October,” he said when asked how much longer the state would be able to pay wages and pensions.
Power workers have threatened to disrupt the new property tax, which the government plans to collect through electricity bills. Unions say they will obstruct the issuing of bills and order workers not to cut the electricity of customers who refused to pay the tax.
