After European debt summit, still no resolution

At the end of the European Union summit in Brussels, Belgium, European Council President Herman Van Rompuy (right) and European Commission President Jose Manuel Barroso deliver a joint address to the media. YVES LOGGHE / Associated Press
At the end of the European Union summit in Brussels, Belgium, European Council President Herman Van Rompuy (right) and European Commission President Jose Manuel Barroso deliver a joint address to the media. YVES LOGGHE / Associated Press
Posted: May 26, 2012

ATHENS, Greece — European leaders insist that they want to keep Greece in the eurozone but are putting off any agreement on how to accomplish that. Greece says that it, too, wants to stay in the eurozone, but whether it can implement the austerity Europe has required will be uncertain until after its elections.

Essentially, both are playing for time — about a month. The question is whether financial markets will wait or force their hand.

Concerns that European leaders lack the political will and wherewithal to tackle the continent’s economic problems have worried markets for weeks. Among the 17 countries that use the euro, seven are in recession. Business confidence is under pressure and banks are feeling the squeeze. The biggest fear is that if Greece cannot be kept in the euro, other larger economies, such as Spain or Portugal, might face the same fate.

In a general election this month, neither of Greece’s two main parties, both of which support the deal negotiated in exchange for a bailout, fared well. A new round of elections is set for June 17.

If the Greeks pick an anti-bailout government the second time around and renege on the terms of the bailout, the flow of money will be stopped and the country could be forced into a messy exit from the euro bloc, as it has no choice but to print its own currency to pay its way.

Other debt-stricken eurozone members might also fall victim to market fears that they could collapse and rattle global financial markets.

There had been hope that this week’s summit in Brussels, Belgium, would bring a softening in the eurozone’s stance with Greece.

Some European countries are already hinting that Greece should be given better terms.

However, as their summit in Brussels broke up early Thursday morning, the leaders failed to offer a reprieve to Greece. Instead, they reiterated that they support Greece’s eurozone membership as long as it sticks to the terms of the bailout deal.

Some politicians have already begun to factor in a Greek exit. In a frank admission that Greece could abandon the euro, Luxembourg Prime Minister Jean-Claude Juncker told reporters that the eurozone countries "have to consider all kinds of events," but insisted "the working assumption" was that Greece would remain part of the eurozone.

The European leaders aim to have more concrete proposals for strengthening the region at their summit on June 28-29, but before then, Greece will have held its elections. By then, Europe’s financial system may have been pushed to the brink.

French investment bank Credit Agricole’s research analysts said EU leaders had set low expectations for the summit "and yet they managed to disappoint nervous markets."

There are concerns among investors that uncertainty over Greece’s future in the eurozone could spark a run on its banks, further destabilizing the banking system and pushing the country even faster toward a chaotic exit from the currency.

Greeks have been steadily withdrawing deposits in recent months.

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