BRUSSELS (Reuters) - European leaders sought to prop up Greece with words of support at a summit on Thursday but failed to offer concrete proposals to help the country tackle its debt crisis, prompting a negative market reaction.
EU President Herman Van Rompuy told a news conference after the summit that Europe was sending Greece a “clear message of solidarity,” a line echoed by Germany and France.
A deal to provide financial aid to Greece move to stave off a broader crisis in the 16-nation bloc would be unprecedented, riding roughshod through rules forbidding a bailout.
But the rhetorical promises of support were not enough to satisfy financial markets, which are looking for specifics on how Athens may be helped out of its debt and deficit spiral.
Greek debt yields rose and the euro currency fell against the dollar.
“The market was disappointed as optimism (for a bailout) had been building over the past few days,” said Ian Stannard, a senior currency strategist at BNP Paribas. “The plan is lacking in details which is leaving the euro under pressure.”
Van Rompuy and German Chancellor Angela Merkel said it was not possible to offer specifics on how Greece might be helped as Greece had not specifically asked for assistance from the EU.
“Euro area member states will take determined and coordinated action if needed to safeguard stability in the euro area as a whole,” the 27 EU heads of state said in a statement after their meeting.
European leaders are keen to prevent Greece’s problems from spreading to other highly-indebted or high-deficit members of the euro zone — such as Spain and Portugal — plunging the currency area into a deeper crisis.
But they also want to keep the pressure on Greece to implement a tough austerity programme designed to cut hundreds of billions of euros in debt and a deficit that totaled 12.7 percent of gross domestic product (GDP) last year — more than four times EU limits.
The leaders’ statement said Greece had reaffirmed its commitment to reduce its budget deficit by four percentage points this year and that progress on that front would be monitored regularly.
“Greece is a part of the European Union and won’t be left on its own, but there are rules and these rules need to be adhered to,” Merkel said.
Greece needs to raise about 53 billion euros ($75 billion) this year to finance its budget and refinance its debts, which are expected to grow to 290 billion euros this year, nearly 120 percent of gross domestic product.
Greek Prime Minister George Papandreou said the deficit cuts would be delivered.
“We are willing to take all the reforms that are necessary to change the way the public sector is working in Greece,” he said. “We have made very serious efforts to convince our partners that we mean business.”
Financial markets had hoped EU leaders would lay out specific plans to provide Greece with a credit life-line or a scheme in which state-owned European banks would buy Greek bonds in order to help the government finance its borrowing.
Any detailed proposals are likely to be discussed by EU finance ministers at meetings in Brussels early next week.
EU leaders seem to be hoping in the meantime that words of support will be sufficient to restore confidence in Greece’s finances, making any bailout unnecessary.
“The question of pledges was not raised because the Greek government has not requested any financial support, which means the Greek government believe they do not need this financial support,” said European Commission President Jose Manuel Barroso. “That is why I think we should not now speculate about scenarios that are so far not present.”
But analysts were unimpressed.
“They are obviously still discussing and no real deal has been struck,” said Marco Valli, senior euro zone analyst at Unicredit. “Detail will be needed to convince markets a plan really exists and this isn’t just a superficial accord with no substance.”
Van Rompuy called on the Greek government to implement steps to consolidate its budget in a “rigorous and determined” manner and said the European Commission would closely monitor progress in consultation with the European Central Bank.
Even with EU support, the Greek government faces a daunting challenge to consolidate its budget and restore confidence in an economy whose imbalances were exacerbated by the economic and financial crisis and where social unrest remains a threat.
Greek unemployment hit its highest level in nearly five years, data showed on Thursday, and civil servants said they would step up strike action to protest austerity measures that include freezes on public sector wages and an overhaul of the tax system.
Writing by Noah Barkin and Luke Baker; Additional reporting by Jan Strupczewski, Emmanuel Jarry, Julien Toyer and David Brunnstrom; Editing by Mike Peacock