ECONOMY

PM supports idea of EU rescue plan

Prime Minister George Papandreou said yesterday Greece supports the creation of a European rescue fund to help the country, adding that he would turn to the International Monetary Fund only if the country could not borrow from markets. «What we are talking about now is creating an ad hoc instrument which will help the Greek economy if in need and we want to borrow,» he said in Washington on the first day of a three-day trip to the United States. The European Commission has confirmed it is working with Germany, France and other European countries on plans for a EU rescue fund that could, in future, be tapped to help troubled countries. Papandreou also said Greece currently has access to markets but was borrowing at high interest rates. If borrowing became a problem «at some point we may have to go the IMF,» the prime minister added. Investors’ concerns over Greece’s debt problems seemed to ease after last week’s austerity measures and the statement by French President Nicolas Sarkozy on Sunday that euro-region countries are ready to rescue Greece if needed. The Greek/German 10-year government bond yield spread narrowed to 283 basis points from 290 bps at Friday’s settlement close and was well off a euro lifetime high of above 400 bps hit in January. The cost of insuring against a Greek default fell 12 basis points to 284 basis points, the lowest since mid-January, according to CMA DataVision prices. However, European Central Bank Executive Board member Juergen Stark said yesterday that a rescue fund would break European rules, penalize countries with solid finances and encourage wayward spending. «Such a mechanism would not be compatible with the principles of the monetary union,» he wrote in a guest column in German daily Handelsblatt. «It would be the start of a financial leveling off in Europe, which would become very expensive, set the wrong incentives and burden countries with more solid public finances.»