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WRAPUP 2-Greek fate is euro zone responsibility, says Merkel
December 10, 2009 / 12:24 PM / 8 years ago

WRAPUP 2-Greek fate is euro zone responsibility, says Merkel

* Merkel: euro zone has common responsibility for Greek fate

* Sweden PM Reinfeldt says Greek problems a domestic matter

* Juncker says Greece won’t go bust, no need for EU help

* ECB’s Nowotny sees no risk of euro breakup over Greece

* Greek bond spread narrows, Soros sees no default

By Boris Groendahl and Sarah Marsh

VIENNA/BONN, Germany, Dec 10 (Reuters) - The euro zone has a collective duty to secure the fate of debt-stricken member Greece, German Chancellor Angela Merkel said, even as other European policymakers said Athens should cure its own ills.

Greece has vowed to do whatever it takes to check its vast deficit, responding to a beating on markets unnerved by Fitch Ratings cutting Greek debt to BBB+ with a negative outlook, citing fiscal deterioration in the euro zone’s weakest member.

Merkel showed solidarity with Greece’s debt problems on Thursday, although she did not say what common responsibility would mean in terms of any action over Athens’ difficulties.

“What happens in one member state affects all others, especially as we have a common currency, which means we have a common responsibility,” Merkel told a news conference.

Other politicians and policymakers stressed the domestic nature of Greece’s problems and said they should be solved in Athens.

“What we now are seeing in Greece is of course problematic, but it is basically a domestic problem that has to be addressed by domestic decisions,” Swedish Prime Minister Fredrik Reinfeldt, who holds the European Union’s presidency, told reporters as he arrived at an EU summit.

Jean-Claude Juncker, chairman of the Eurogroup of euro zone finance ministers, said Greece would not go bankrupt and so would not need help from EU states.

“I completely exclude a state bankruptcy of Greece,” he told reporters on the sidelines of a meeting of the conservative European People’s Party (EPP) in Bonn.

Markets’ nerves were further tested on Wednesday when another ratings agency, Standard & Poor‘s, revised its credit outlook on Spain to negative and said it risked a downgrade if the government does not take tough action. [ID:nGEE5B820M]

In Vienna, European Central Bank Governing Council member Ewald Nowotny dismissed any prospect of a euro zone break-up.

Asked whether there was risk of the single European currency area breaking up because of Greece, Nowotny said: “No, I do not see this in any way.”

“An exit or something similar from the euro zone would be totally unrealistic for Greece, and also not doable,” he added during a panel discussion in Vienna.

He added that joining the euro was not a panacea for new countries, and it was not the ECB’s responsibility to step in and rescue troubled members.

Greece has faced harsh criticism over its credibility and increasing borrowing costs since a new Socialist government revealed the budget deficit was twice as big as previously forecast and would reach 12.7 percent of GDP this year.

SOROS SOOTHES

The premium investors demand to hold Greek government bonds GR10YT=RR rather than euro zone benchmark German Bunds fell after the comments from Nowotny and another ECB official.

Billionaire investor George Soros said he was sure the Greek government would not be allowed to default on its debts despite growing budgetary difficulties and market concerns.

“There has to be pressure on Greece to put its house in order but I‘m sure that Greece will not be allowed to default. The same applies to the United Kingdom,” Soros told Sky News television.

In Luxembourg, ECB Governing Council member Yves Mersch said he felt confident the Greek authorities were aware of the gravity of the situation, and that they would put in place necessary measures.

The situation in Greece “shows the importance for countries that are in a monetary union to have the necessary discipline to respect established budgetary rules”, Mersch said.

Greek Finance Minister George Papaconstantinou on Wednesday reaffirmed his pledge to cut the budget gap from an expected 12.7 percent of GDP this year to 9.1 percent in 2010. (Additional reporting by Matthias Inverardi and Antonia van de Velde in Luxembourg and Mike Dolan in London; Writing by Paul Carrel and Andy Bruce; Editing by Victoria Main)

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