BRUSSELS, Belgium — Could Greece drag down Europe?
EU finance ministers are pressing their indebted and riot-prone Balkan member to embrace a massive austerity plan and plug its debilitating deficit. But with markets skeptical and the appetite for more bailouts at a low, there are deepening concerns that a Greek meltdown could deal a severe blow to the very European idea of a common currency, and set off a domino effect through Italy, Spain, and Portugal.
Today, some European Union leaders said they were confident that Greece would pull itself out its debt crisis under a plan submitted by Prime Minister George Papandreou, who promises to cut expenditure and tighten the country’s notoriously leaky tax system.
Spanish Finance Minister Elena Salgado — whose country holds the rotating EU presidency — said she was “not worried” that Greece will default. But she refused to discuss the possibility of a bailout in case Greece fails to make debt repayments — fears that have sharply raised its borrowing costs.
“I think Greece is going to do all that is necessary to avoid that,” she said before chairing an EU finance ministers meeting.
A bailout would be a first for the decade-old eurozone, which now looks vulnerable and faces painful, unpopular measures such as budget cutbacks and higher taxes.
Other European governments were less sure — and reluctant to pay for Greece’s failure to manage its debt.
Finland’s finance minister Jyrki Katainen bluntly said the Greeks couldn’t expect “any outside help.” Dutch Finance Minister Wouter Bos the Greek plan to cut debt “needs to be more substantial” because it is based on vague one-offs like a promised fight against corruption.
Markets are also skeptical that Greece can make the cuts that are needed. BNP Paribas currency strategist Ian Stannard said investors believe they “lack detail and in some respects appear unachievable.
Stannard cited the risk of investors losing their appetite for Greek bonds, 70 percent of which are held by foreigners. “If foreign investors from outside the eurozone start to turn their back on Greek assets, this will have a significant negative impact on the euro.”
Bigger, better off countries such as Germany would be faced with leading a bailout, but it’s not certain that their leaders — or voters — would agree. Meanwhile, other countries with heavy debt loads — Spain, Italy, Portugal, Ireland — would have to pay more to borrow if investors flee government bonds because of Greece.
European Central Bank head Jean-Claude Trichet warned openly last week that heavily indebted eurozone countries risk “rapid changes in market sentiment.”
EU Economy Commissioner Joaquin Almunia warned Tuesday that it was up to those countries to take their own action to cut budgets “to be better protected in the face of this nervousness of the markets.
European leaders are scrambling to pull things together. On Monday, the 16 countries that use the euro announced an overhaul of how euro nations coordinate their economies, with formal warnings for states that running much higher inflation or average wages than their neighbors.
EU finance ministers will discuss Greece’s plan to reduce debt in February.
Almunia said EU officials would monitor how Greece is implementing the debt reduction measures and seek the power to audit Greek statistics — which the EU says have been falsified under political pressure in the past.
Papandreou is saying the right things to calm markets, but it is uncertain that he can push them through in a country where many look to the government as a jobs provider, and where political unrest can easily boil over into confrontations on the streets — as they did in December 2008 rioting after police shot a 15-year-old boy.
Greece’s two largest trade union groups are threatening strikes to protest the government’s efforts which they say are unfair measures that target the poor instead of the rich.
The General Confederation of Greek Workers, or GSEE, called on Tuesday for a 24-hour general strike in late February, although it did not immediately set a date. The country’s main civil servants’ union, ADEDY, has already called for a 24-hour walkout on Feb. 10.
“There is a fear by the markets and by Europe’s conservatives that the government won’t manage to annihilate us. Well, (it) won’t manage to annihilate us,” GSEE spokesman Stathis Anestis said. “We won’t tolerate it, we won’t allow it.”
Anestis promised more strikes and called on the government to stimulate the economy rather than increasing taxes that would affect those on low incomes.
However, Greeks largely back their government and the need to cut the public debt. A recent opinion poll showed 58.6 percent saying they viewed the government’s handling of the crisis favorably or relatively favorably, compared to 38.6 percent who viewed it unfavorably.
The poll also found 61.9 percent of respondents did not believe Greece would go bankrupt, compared to 35.8 percent who did, while 68.7 percent believe the government must follow the EU’s recommendations.
The poll, carried out by the GPO polling company for the Mega television channel and widely published today, did not give a margin of error.