March 24, 2010 / 1:08 PM / 9 years ago

WRAPUP 4-Euro zone deadlocked on Greece, euro slides

 * Euro at 10-month low on Portugal downgrade, Greek doubts
 * EU powers wrangle over IMF role in any Greek rescue
 * Barroso appeals for safety net to help Greece if needed
 * Dutch PM says euro zone summit on Greece too risky
 * Merkel insisting on tougher punishment for deficit sinners
 (Adds diplomat saying Greece to be discussed only if deal at
 By Jan Strupczewski and Julien Toyer
 BRUSSELS, March 24 (Reuters) - Euro zone officials failed on
Wednesday to break a deadlock over how to help debt-stricken
Greece on the eve of a EU summit, driving the euro to a 10-month
low after fellow weakling Portugal suffered a debt downgrade.
 The latest jitters to hit the common currency underlined the
risk of market contagion if European Union leaders, meeting on
Thursday and Friday, cannot agree a safety net for Greece.
 "There is still no agreement," one EU diplomat said after a
day of frantic behind-the-scenes negotiations, especially
between Brussels, Berlin and Paris.
 "There is a lot of uncertainty at the moment. If nothing has
been announced, it is because nothing has been agreed yet,"
another EU source said of efforts to arrange a special meeting
of the 16-nation euro zone before or during the EU summit.
 An EU diplomat said later that Greece would be discussed
only if there were a chance of reaching an agreement on how the
common currency area can help Athens cut its borrowing costs.
 "Germany does not want to have a meeting of euro zone
leaders unless there is a definite chance for a deal," said the
diplomat, who has knowledge of the preparations. [nLDE62N2MT]
 Diplomatic sources said Germany and France were still
discussing whether to involve the International Monetary Fund in
any standby aid mechanism for Greece, and what form any
additional contribution by euro zone states might take.
 Athens revealed a huge budget deficit last October, shocking
investors who sold off its government bonds. This sent Greek
borrowing costs soaring, dealing Athens another blow as it tries
to get the deficit down with unpopular austerity measures.
 European Commission President Jose Manuel Barroso appealed
to euro zone leaders to agree a contingency plan this week.
 "It is now appropriate to create, within the euro area, an
instrument for coordinated action which could be used to provide
assistance to Greece in case of need," he told the European
Parliament. [nBRU010725]
 German officials said Berlin's drive to put the IMF at the
centre of any rescue plan was gaining ground, but they did not
expect any decisions on aid for Greece at the Brussels summit.
 France and Spain have called for the special meeting of euro
zone leaders on the sidelines of the summit, as Athens faces
refinancing 20 billion euros of debt in April and May.
 However, Dutch Prime Minister Jan-Peter Balkenende told
parliament that the proposed meeting was "too risky".
 Chancellor Angela Merkel, facing fierce opposition at home
to any bailout for Greece, is also insisting as a condition for
any support package that EU rules be rewritten to provide
harsher punishment for deficit sinners.
 Graphic on euro zone debt crisis
 Graphic on Greece and Portugal
 Q+A on Greece and EU standoff         [ID:nLDE62H0W2]
 Q+A on EU eyeing IMF role in euro zone[ID:nLDE62N1RS]
 BreakingViews column on IMF role      [ID:nLDE62N0QB]
 Analysis on Greek debt challenge      [ID:nLDE62E25V]
 Analysis on Merkel's role in crisis   [ID:nLDE62M0HN]
 TAKE A LOOK-Europe's fight with debt  [ID:nLDE6211JD]
 Greece has not formally asked its EU partners for aid, but
believes a support mechanism would ease pressure on it by
dissuading speculators from pushing up its borrowing costs.
 Fitch Ratings downgraded Portugal's sovereign debt rating by
one notch to AA-, citing budgetary underperformance. The move
put Fitch in between fellow credit watchdogs Moody's and
Standard & Poor's, but had a stronger psychological impact due
to the climate of uncertainty. [nLDE62N193]
 "The downgrade has more of an impact on the wider sovereign
debt crisis, rather than Portugal at the moment," said Peter
Chatwell, bond analyst at Credit Agricole in London.
 The euro fell more than 1 percent against the dollar to
$1.3335, its lowest since early May 2009. Portuguese shares also
fell and the risk premium on Portuguese and Greek debt over
German bonds widened as markets digested the news.
 Greece needs to borrow some 16 billion euros between April
20 and May 23 alone to refinance maturing debt. At current
market rates it would have to offer a 6.5 percent yield, more
than double the 3.1 percent on 10-year German government bonds.
 But the German official reiterated that any rescue mechanism
must apply only if Athens were unable to borrow on the markets.
 EU governments hope that any agreement on a fallback
mechanism would be sufficient to convince markets to narrow the
spreads on Greek and other peripheral euro zone countries' debt.
 France has resisted a role for the IMF inside the euro zone,
arguing it would be a political humiliation and signal to
markets that the region could not solve its own problems.
 However, diplomats said Paris now seemed willing reluctantly
to concede a role for the IMF as the price for securing German
backing for a rescue mechanism.

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