Eurozone ministers seek ways to stem debt crisis

[April 20, 2010]  MADRID (AP) -- Eurozone finance ministers gathered Friday to seek ways to halt a government debt crisis as Greece asks the European Union and the International Monetary Fund to step up work on a potential multibillion bailout.

The Greek government said Thursday it would hold "systematic negotiations" on the standby loan package with other members of Europe's currency union at the two-day meeting in Madrid.

But arriving at the Madrid conference center Friday, Jean-Claude Juncker, head of the eurozone finance ministers, said, "There are no indications that Greece will ask for help today."

It was unclear how many ministers would make the trip after volcanic ash held up flights in northern Europe. At least one official, the EU's economy commissioner Olli Rehn, was taking the overnight train trip from Brussels to Madrid.

Ministers from at least 12 countries, including Belgium and Slovakia, missed the start of the meeting as air travel was disrupted due to the ash cloud drifting over Europe from an eruption in Iceland. Spanish officials said at least eight of the ministers were expected to arrive later Friday.

The Greek government said its request for more details on bailout loans was not a signal that the country would seek aid. Officials from the European Commission, the European Central Bank and the IMF will visit Athens on Monday to clarify details of a standby loan offer that aims to reassure markets that Greece won't default on its mounting debt.

"Today is not the day for a decision on Greece," Spanish Economy Minister Elena Salgado told reporters before going into the meeting. "A decision on Greece was taken some days ago."

Investors are demanding high interest rates for Greek bonds because they believe Greece could be unable to repay debt despite recent efforts to cut a massive budget gap.

Finance ministers from the 16 nations that use the euro agreed Sunday to give Greece some euro30 billion in individual loans if the country can no longer borrow on the market.

The announcement initially calmed markets -- and saw the interest rate gap, or spread, between Greek 10-year government bonds and their benchmark German equivalent fall.

But continuing uncertainty over the bailout package and how long it would take to be paid out widened the spread Wednesday after a German official said the parliament would need to approve Germany's share, the largest at euro8.4 billion. That could take months.

The spread was at 4.2 percentage points Thursday.

The IMF has not yet said how much it would pledge -- and whether it could offer aid faster than European treasuries. EU officials said they expected the IMF to provide some euro15 billion.

Greece needs to borrow some euro11 billion next month and has already raised nearly half of the euro54 billion it wants to borrow this year.

The country is also under pressure to toughen an austerity program to show that it is committed to reducing a deficit from around 13 percent of national income last year to some 3 percent in 2012.

Greece's flagrant flouting of EU debt and deficit limits has triggered a sharp drop in the euro's value against the dollar and exposed the flaws in the loose way eurozone governments are supposed to coordinate their economies.

Most eurozone nations are now running deficits above the EU's maximum 3 percent and are promising to reduce those over the next few years.

EU officials are calling for more, saying the European Commission should check budget spending before parliaments do and should monitor how euro member economies are faring. They say these moves could prevent a country like Greece overspending and failing to reform its economy.

They are also warning that richer euro nations, like Germany and the Netherlands, need to do more to reduce their huge current account surpluses, saying they could help rebalance wide differences in the euro area by stoking domestic demand and investment.

EU Economy Commissioner Olli Rehn warned Thursday that Europe's debt crisis could trigger deflation across the 16 nations that use the euro if Greece and others don't make tough reforms -- such as opening up the labor market, allowing more competition between companies and training workers for skilled jobs.

Greece, Portugal and Ireland are under pressure to make their economy more competitive in the long-term. Countries often do that by devaluing their currency, a choice Greece does not have because it is part of Europe's currency union.

This means they must make other efforts, such as curbing wage levels -- or risk its problems affecting other euro nations.

[Associated Press; By GREG KELLER]

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