EU in crisis talks on Greek bailout
Strikes paralyse country as more cuts loom
EURO finance ministers and the governors of the European Central Bank held tele-conference meetings last night as arguments raged about how to help Greece in its public finance crisis.
Some assistance now looks inevitable. The euro rose, and long-term interest rates fell, on reports that Germany was considering what form any rescue might take.
In Berlin, sources in the coalition government said a deal on which countries would help Greece, and by how much, could be reached on the sidelines of today's summit of EU leaders.
Even if that proves impossible, markets will expect an early announcement. Failure to produce one would send them into a panic, and raise fresh doubts about the stability of the eurozone.
But even as the talks went on, in Athens striking government workers brought things to a standstill, grounding flights and shutting many schools and offices.
They were protesting at the existing plans for cuts in a budget deficit widely estimated at more than 13pc of GDP.
Among the proposals are a wage freeze, pay cuts for higher public sector earners, tax rises and an increase in the low retirement age.
Riot police fired tear gas at demonstrators who tried to break a security cordon, but protests were mostly peaceful.
Trade unions have called a general strike for February 24. Any aid package is likely to be accompanied by even stricter conditions on the action to be taken given the timetable involved.
Sources say several forms of rescue are begin discussed. One is for individual countries -- mainly France and Germany -- to offer bilateral aid. Another is to guarantee Greek borrowings in the market. A third is to buy existing Greek debt from lenders, making it easier for them to lend more to the Athens government.
Greece needs to borrow about €53bn this year to cover its deficit and replace loans which are due for repayment. It has to raise €20bn in April and May, and this could be the target of any assistance. It is also due to receive €20bn in EU structural funds, which could be paid in advance to ease the pressures.
Interest rates on Greek government bonds fell to a three-week low, at 2.76pc below their German equivalents and well down on the 4pc difference at the height of last week's crisis.
Greek Prime Minister George Papandreou held talks in Paris to seek support for his budget plans, although a French source said there was no agreement yet on aid.
"We are ready to take any measures in order to make this sure and guaranteed that we reach this goal, and they will be implemented in every detail," Mr Papandreou said.
Any financial assistance would likely be tied to strict conditions, but the nature and scale of a rescue remain unclear, partly because a treaty prohibition on EU bailouts for euro zone members complicates the task.
Experts say that loans to Greece could probably be held to fall within EU law, but there might be more of a problem with guarantees.
By standing behind another country's finances they could be seen as falling foul of the ban on bailouts of euro members.