SHARP DIVISIONS have emerged within Europe over how to deal with Greece’s debt crisis on the eve of a summit that will be dominated by talks over the need to shore up confidence in the euro zone.
Non-euro zone countries, led by the UK and Sweden, yesterday broke from the public position of Germany, France and other euro area states by suggesting that, if Greece required help, the International Monetary Fund was best placed to supply it.
A Swedish official said: “The IMF has the technical know-ledge”.
Officials in London suggested that the risk of financial contagion from the Greek crisis meant that it should not be regarded as a matter exclusively for the 16 euro zone countries.
Financial markets gyrated on speculation that Germany was poised to announce an emergency rescue for Greece.
A strong rally on Wall Street petered out when a spokesman for Angela Merkel, the German chancellor, said that reports Berlin had decided to provide financial assistance were “wrong”.
There were signs that euro zone member states had yet to arrive at a common position in advance of the summit, where EU heads of government will be joined by Jean-Claude Trichet, the European Central Bank president.
“Within the euro zone there are a lot of different positions, but it’s very hard to predict where it will end,” said one official in a eurozone country.
Joaquín Almunía, the EU’s economic and monetary affairs commissioner, said that European leaders should offer their support to the Athens authorities in exchange for the efforts they were making. “You don’t get support for free,” he told the European Parliament. “That would simply lay the foundations for further imbalances and crisis.”
British officials suggested the IMF might need to be brought in because the troubles of the euro zone’s weaker members risked spreading contagion to non-euro countries. However, their views count for less than those of the 16 euro zone governments, which fear IMF involvement would represent a strategic setback for Europe’s ambition to assert its global economic power.
Erik Nielsen, the chief European economist at Goldman Sachs International in London, said in a note yesterday that there was a risk of “contagion” from Greece spreading to Spain and Portugal, which would place as much as 30 per cent of euro area gross domestic product “under severe stress”. The euro leapt more than a cent against the dollar on news of a possible bailout before slipping once more after denials yesterday.
Similarly the advance pushed the Greek 10-year bond yield down the most since at least 1998.
US markets joined the rally and at one point both the SP 500 and the Dow Jones Industrial Average had added more than 2 per cent. – (Copyright The Financial Times Limited 2010)
