Markets remain nervous after EU summit
There is mounting evidence today that a pledge of support to Greece from EU leaders has failed to calm investors’ anxieties about the stability of the eurozone, with the value of the euro falling on financial markets.
The euro today was trading for as little as $1.3545, its lowest level since May 2009. The euro also fell to 121.96 against the yen, a three-day low.
EU leaders yesterday agreed that their governments would provide Greece with financial support, “if needed”, to stabilise the country’s economy. They said the support was conditional on Greece implementing various structural reforms (such as reforms to pensions and the civil service) that have been announced by the country’s government in recent weeks. Greece must also implement any additional measures the European Commission and European Central Bank deem necessary to restore the country to fiscal health.
EU leaders have shied away, however, from giving any specifics on how financial support might be provided to the country, limiting the effect on the markets of their declaration of support.
Greece’s deficit for 2009 is estimated at 12.7% of gross domestic product (GDP), the largest in the eurozone. The parlous state of Greece’s finances has led to concern among investors that the country may not be able to service its debt.
The mood on the markets has not been helped by the release today of figures indicating that the eurozone economy is recovering from the financial crisis at a slower pace than had been predicted.
The EU’s statistical office, Eurostat, said in a flash estimate that GDP in the eurozone grew by only 0.1% in the fourth quarter of 2009. Germany, the eurozone’s largest national economy, had 0.0% growth. Growth in France was at 0.6%, while Italy’s economy contracted by 0.2% (making a return to negative growth after a positive third quarter).
Eurozone growth was down sharply compared to the 0.4% recorded in quarter three.
A Commission spokesman said that the figure was “clearly below market expectations”. “This shows indeed that we still have a lot of effort to do for recovery of the economy,” he said.
Olli Rehn, the European commissioner for economic and monetary affairs, said today that the Commission would present a first assessment in March of Greece’s progress in implementing its reform programme. He said that, if necessary, the Commission would at that time propose additional measures that Greece should implement to restore its finances. Finance ministers will discuss Greece’s situation at a meeting next week (15-16 February).
Rehn said that the Commission “will soon come forward with proposals to further strengthen the co-ordination and the surveillance of national economic policies within the euro area”.
“The critical lesson from this crisis is that we urgently need deeper and broader surveillance of economic policies, including earlier detection and tackling of imbalances, in order to better safeguard the macro-financial stability of the euro area,” Rehn said.