May 27, 2024

From Europe, Mounting Pressure Over Greece’s Debt

The announcement could portend yet another restructuring of Greek debt to stave off a default. A stopgap bailout plan announced on July 21 has yet to be approved by all 17 nations that share the euro currency, and in recent weeks a renewed sense of crisis has engulfed the euro region.

In the latest sign of turmoil, Italy — the euro region’s most indebted member, after Greece — was forced to pay record-high interest rates in order to complete an auction of its five-year bonds on Tuesday, despite continuing purchases by the European Central Bank. Spain, which plans a bond sale on Wednesday, could be subjected to similar investor wariness.

Plans were clearly being laid Tuesday for a serious conversation with Mr. Papandreou. His government has proved incapable so far of making the kinds of legal changes and budget cuts in the middle of a deep recession that Athens has promised its European partners and the International Monetary Fund.

France, where shares of the biggest banks have plummeted recently on fears of exposure to Greece’s debt, is pressing for a stronger signal from Germany that Europe will act to resolve the Greek matter before it spreads further contagion.

Despite the stepped-up pace of economic diplomacy, Europe’s response to the debt crisis still appeared to be behind the curve. That was underscored by the announcement that Timothy F. Geithner, the United States Treasury secretary, will make a rare appearance at an informal meeting of European finance ministers to be held Friday in Wroclaw, Poland. The trip will be Mr. Geithner’s second across the Atlantic in a week, following the Group of 7 session in Marseille, France, last weekend.

“Clearly the U.S. Treasury is disappointed with the direction of the European debt crisis and is looking for action, before further sections of the banking system are drawn in and a global financial crisis is revisited,” Chris Turner and Tom Levinson, strategists at ING, said in a research note.

Growing concern in Washington about the euro crisis and the damage it is doing to the markets and the global economy was also expressed by President Obama, meeting with Spanish-speaking journalists in Washington.

Mr. Obama urged European leaders to step up their efforts. “In the end the big countries in Europe, the leaders in Europe, must meet and take a decision on how to coordinate monetary integration with more effective coordinated fiscal policy,” Mr. Obama said, according to the Spanish news agency EFE.

Mr. Sarkozy met Tuesday evening at the Élysée Palace with Herman Van Rompuy, the president of the 27-nation European Council, to discuss the euro crisis, but neither man spoke afterward to the press. Mr. Van Rompuy has been asked by Germany and France to head a similar council of the 17 euro zone nations.

France and Germany are pressing to put into place the decisions made at the last euro zone summit meeting on July 21, which called for raising the total bailout fund to 440 billion euros ($598 billion). Germany, whose participation would be the most crucial financially and politically, is among the many countries that have yet to ratify that agreement.

Mrs. Merkel, who is working to win a ratification vote in the Parliament this month, said on Tuesday that Germany would ensure there would be no “uncontrolled default” of Greece that could pull down the euro zone. An uncontrolled default would be the equivalent of Greece’s simply walking away from its debts, whatever the consequences, rather than undergoing the equivalent of supervised bankruptcy proceedings.

“It is our top priority to avoid an uncontrolled default,” Mrs. Merkel said, “because it would hit not only Greece. The danger would be very high that it would hit many other countries.”

Mrs. Merkel’s mention of default was significant, because there is increasing skepticism that even the second bailout of Greece would be enough to bring it to a sustainable level of debt.

The Dutch finance minister, Jan Kees de Jager, said on Tuesday that he was studying the possible consequences of a Greek default.

“We’re currently preparing for many scenarios and possible shock effects,” Mr. De Jager said in an interview with the broadcaster RTLZ. He declined to comment when asked whether euro zone officials were preparing for a default of Greece.

Reporting was contributed by Nicholas Kulish and Judy Dempsey in Berlin, Matthew Saltmarsh in London, Elisabetta Povoledo in Rome and Graham Bowley in New York.

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