German Chancellor Angela Merkel and French President Nicolas Sarkozy also stressed to Greek Prime Minister George Papandreou “that it is more indispensable than ever to fully implement the decisions adopted July 21” by the eurozone leaders “to ensure the stability of the eurozone,” the French president’s office said in a statement.
Fears that Greece was heading rapidly toward a chaotic default — and the idea that it should potentially leave the euro and return to its own currency — have roiled markets for days, both across the 17-nation eurozone and globally.
“In the face of the extensive rumbas of the last few days, it was stressed by all that Greece is an integral part of the eurozone,” government spokesman Elias Mossialos said after the teleconference.
The main fear of a Greek bankruptcy is that it could destabilize other financially troubled European countries such as Portugal, Ireland, Spain or Italy. It would also have a knock-on effect on banks, many of which are large holders of Greek government bonds. Moody’s on Wednesday downgraded the credit ratings of two French banks, Societe Generale and Credit Agricole.
Merkel and Sarkozy pressed the Greek leader on the “importance they attach to the strict and effective implementation of the Greek economic redressment program,” statements issued in Paris and Berlin said.
Sarkozy’s office said Papandreou “confirmed his absolute determination to take all measures necessary to implement the ensemble of commitments made.” The Greek reforms “are indispensable for the Greek economy to find the path of sustainable and balanced growth.”
The euro ticked up by a less than penny to $1.37 on news of the completion of the talks.
Greece currently relies on funds from last year’s $150 billion international bailout to service its debt and pay salaries and pensions. But the lifeline could be cut if the country continues to miss fiscal and reform targets.
Sticking to its commitments “is the precondition for the payment of future tranches of the program,” Merkel spokesman Steffen Seibert said in a statement.
The quarterly payout depends on reviews by Greece’s international debt inspectors — the European Commission, European Central Bank and International Monetary Fund, known as the troika.
The next batch worth $11 billion is due in late September, but there were fears the troika would not approve its disbursement after the debt inspectors suspended their review earlier this month. They are due to return to Athens in coming days. Without the next installment, the country has enough cash to keep it going only until mid-October.
Greece’s international creditors have become increasingly frustrated by the slow pace of reforms, with the country falling behind on a number of targets, including a massive privatization drive promised since February but which has made little gains to date.
Mossialos said his country was “determined to meet all its commitments to its partners, so ensuring the full implementation of the support program.”
Extra austerity measures announced in recent days, including a new property tax, will ensure that Greece achieves its fiscal targets this year and next year, and will lead to the country posting primary growth, Mossialos said. Greece currently is posting a primary deficit, which means it is spending more than it makes even before interest rates on outstanding debt is taken into account.
Many investors have been convinced Greece will not be able to fix its public finances under its current economic plans. Interest rates on the country’s 10-year government bonds soared to new record highs in recent days, hitting the alarming level of 25.3 percent on Wednesday, more than 23 points higher than the German equivalent.
Merkel spoke out earlier this week to calm the market and distance herself from her vice chancellor, and others who suggested a Greek bankruptcy was possible.
“We are confronted with the most serious challenge of a generation...,” European Union Commission President Jose Manuel Barroso told the European Parliament in Strasbourg, France. “This is a fight for the economic and political future of Europe. This is a fight for what Europe represents in the world. This is a fight for European integration itself.”
U.S. Treasury Secretary Timothy Geithner, who is due to meet with eurozone finance ministers in Poland on Friday, also weighed in to the crisis. Speaking on American news channel CNBC, he said Europe’s leaders know they have “been behind the curve” but he also sought to soothe investors, claiming the eurozone governments understood the severity of the situation and have the financial firepower “to do what it takes to hold this thing together.”
Europe’s big trading partners — the U.S. and China — have made clear they want the crisis contained.
China’s Premier Wen Jiabao said European countries needed to tackle their debt problems and make changes to help restore global financial stability and steady economic growth. Beijing has shown interest in helping financially troubled European countries by investing or buying their bonds.
“Countries must first put their own house in order,” Wen said.