By Mamonov Roman
EU leaders are gathering in Brussels for a marathon session of summits to face a whole array of pressing issues, including how to deal with Greece’s debts, how the European Financial Stability Facility (EFSF) should work and how to recapitalize banks.
All 27 EU leaders are meeting on Sunday morning, and in the afternoon the 17 countries that use the euro will hold a special summit of their own. The gathering will then be followed by another summit on October 26.
Reaching a consensus on bailout packages for Greece will be high on the agenda of the Wednesday summit. Eurozone proposals put forward earlier this year suggested creditors write off 20 percent of what they are owed, but the latest proposal is that this cut should amount to 60 percent.
Earlier in the week, European stock indexes declined in anticipation of the summits, with those of Dexia, BNP Paribas and Societe General tumbling to 6 percent.
Meanwhile, Germany and France remain at odds over the reform of the EFSF, which has already been green-lighted by cash-strapped Slovakia. German Chancellor Angela Merkel calls for turning the EFSF into an insurance mechanism to raise the money through issuing bonds, while French President Nicolas Sarkozy insists that the EFSF should get a banking license. In Moscow, expert Igor Nikolayev sees more logic in Germany’s actions:
“Germany is the basis of the Eurozone economy,” Nikolayev says, citing the current situation in Germany, which is much more stable than in France, where banks are almost certain to be damaged by possible Greek default.
In the meantime, Greek’s national debt continues to balloon and is expected to reach 166 percent of the GDP by 2012 – something that experts warn may paralyze the country. In this connection, they say, any attempt to give a helping hand to Greece is fraught with implications for European banks. Echoing them is Alexei Logvin, a Moscow-based finance expert, who warns creditors against writing off 60 percent of Greece’s debt:
“This may contribute to financial woes of other troubled countries,” Logvin says, adding that the 21-percent cut is the right figure. “An economic entity, Greece has a sovereign status and the country’s possible default is not necessarily fraught with its withdrawal from the Eurozone,” Logvin concludes.
As for troubled countries, they include Portugal, Ireland, Greece, Spain and Portugal, whose credit ratings have repeatedly been lowered by international rating agencies, such as Moody’s. As for Portugal, it faces a string of problems pertaining to its budget deficit as Moddy’s predicts tougher times ahead for France. It seems, however, that, Europeans continue to hope against hope, Moscow-based economics expert Yevgeny Nadorshin says, citing Sunday’s EU summit, which will hopefully decide on the distribution of the EFSF’s funds:
“First and foremost, the funds should shore up troubled countries and deal with the restructuring of the banking sector,” Nadorshin says, citing other outstanding issues related to the Eurozone. “The EFSF being massively increased in size will certainly be perceived as the good news. The fate of Greece is unlikely to be clarified during the summit given Germany’s current stance on the matter,” Nadorshin wraps up.
Meanwhile, 150,000 people have taken part in protest rallies in Athens, where one person was killed and 200 others injured in armed clashes with police earlier this week. Experts expressed hope that the Greece issue will be finally resolved by early November, when the G-20 summit will kick off in Cannes.