Financial Regulatory Forum

ANALYSIS-After hardball, Greece gets EU solidarity pledges

EU High Representative for Foreign Affairs Catherine Ashton (L) poses with Greek Prime Minister George Papandreou during a European Union leaders summit in Brussels December 10, 2009.  REUTERS/Yves Herman By Brian Love, European Economics Correspondent

PARIS, Dec 11 (Reuters) – Reassuring noises from France and Germany suggest Greece can ultimately count on help from its euro zone partners if its debt problems get out of hand — though its partners were content to see financial markets scare Athens for a while.

As Greek bond spreads ballooned early this week, officials in major European Union governments indirectly fuelled the panic by refraining from making clear pledges of support for Greece.

Most of the officials’ public statements focused on urging Athens to face up to its problems and, like Ireland, take drastic steps such as public spending cuts to reduce its budget deficit and prevent its debt from becoming unserviceable.

But since Thursday, European officials have changed tack and indicated they are prepared, if necessary, to act to prevent the fiscal pressures on Greece from growing so heavy that the country might have to pull out from the euro zone.

Some analysts think the EU deliberately used the bond market turmoil to make the Greek government recognise the need to act decisively on its deficit — and then calmed the turmoil before it could become unmanageable and do lasting damage to Greece.

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