Merkel notes ‘Herculean effort’

German Chancellor Angela Merkel praised the Greek government’s efforts to rein in its budget deficit, saying that all European Union members must take measures to adhere to the bloc’s deficit guidelines or risk undermining the euro. The Greek government, which on Thursday announced plans to cut spending and raise revenue by about 10 billion euros, «has now taken important steps toward budget consolidation,» Merkel told reporters in Berlin yesterday. «Not only do I approve of these, but I know what a Herculean effort that is for the Greek prime minister.» The comments mark the second time this week Merkel has linked Greece’s worsening finances with the euro. Her remarks yesterday contrast with a speech she made earlier this week when she said that Greece’s mounting deficit risks hurting the euro. That helped trigger the euro’s biggest drop in almost a month. The premium demanded by investors to hold 10-year Greek government bonds rather than eurozone benchmark German Bunds fell yesterday from an 11-month peak. Traders said the market was unwinding positions ahead of a long US holiday weekend, having sold Greek bonds heavily on worries about the country’s fiscal situation. Greek 10-year government bonds yielded 268 basis points over equivalent maturity German Bunds, down from around 289 basis points earlier in the session. Meanwhile, the cost of insuring Greece’s sovereign debt against default was little changed at 339,300 euros per 10 million euros of exposure yesterday, according to five-year credit default swap prices from CMA DataVision. The cost hit a record high of 345,000 euros on Thursday. Retail investors offered tax-free returns The Public Debt Management Agency (PDMA) said yesterday that the Greek government will auction 1.2 billion euros of 13-week T-bills on Tuesday. Retail investors will also be able to take part in the auction that offers tax-free returns for those who hold onto them until maturity. Greece is expected to borrow around 54 billion euros in 2010, versus 66 billion euros last year. ‘Greece will not default’ Greece won’t default on its debt or abandon Europe’s single currency, said Luxembourg’s Jean-Claude Juncker, who heads the group of euro area finance ministers. «Two things won’t happen: Greece won’t go bankrupt, but it has to make enormous efforts,» Juncker told a press conference in Luxembourg yesterday. «The second point is that the hypothesis that a country will leave the Eurogroup or eurozone is not a question. It’s absurd.» Leaving the eurozone would «cause unmanageable problems for a country,» Juncker said. The so-called Eurogroup of finance ministers from the 16 nations using the euro will discuss Greece at a meeting in Brussels next week. Meanwhile, European Central Bank President Jean-Claude Trichet warned yesterday that Greece faced a lot of work to put its house in order. Speaking on French radio, Trichet said, «We have a major problem on debt [in Europe].» He added: «On the subject of Greece, I have said it has to do its own work, in its own home, so to speak. It is important work and some decisions were taken yesterday by the government.»

Subscribe to our Newsletters

Enter your information below to receive our weekly newsletters with the latest insights, opinion pieces and current events straight to your inbox.

By signing up you are agreeing to our Terms of Service and Privacy Policy.