G7's reassurances fail to calm fears of Greek meltdown

Euro plummets despite claims Athens will be forced to deliver on its budget plan
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The Independent Online

The Euro fell to its lowest level since last May yesterday, despite attempts by Europe's finance ministers to soothe fears over Greece's parlous finances. Shorting against the single currency also shot up to the highest level since the euro was created.

Politicians and central bank officials at the G7 meeting in Iqaluit in Canada at the weekend lined up to assure the financial community that Athens will stick to plans to slash public debt from 13 per cent of GDP to 3 per cent by 2012. But investors remain wary, putting pressure on the euro – which has already dropped by 10 per cent since November – and sending the yield on Greek government bonds up by another 15 basis points compared with the benchmark German Bund.

Last week saw stock markets in other eurozone economies with large debts and weak finances shaken by concerns that Greece's problems will prove contagious. Ireland's stock market lost another 2 per cent yesterday, but trading in Portugal and Spain remained in the black.

Despite expressions of support for Greece from eurozone counterparts, a bailout is still being talked down. At the G7 meeting, Jean-Claude Trichet, the president of the European Central Bank (ECB), said that "the Greek government will take all necessary decisions", while the ECB will "monitor closely" its progress.

Jean-Claude Juncker, the chairman of the eurozone finance ministers' group, rejected the suggestion that Greece be bailed out by the International Monetary Fund.

Leaders of the stronger eurozone economies have consistently come out against a bailout. At the Davos World Economic Forum earlier this month, the German Economy Minister, Rainer Brüderle, said: "German taxpayers cannot finance the failures of others."

Meanwhile, Athens faces a fight to push through its new budget regime. Tax officials held a one-day strike last week, in protest at plans to freeze wages, raise taxes and increase the retirement age. And the civil service plans another 24-hour stoppage for tomorrow.

Part of the problem is that there is no procedure for dealing with a eurozone member's debt crisis because the 1993 Maastricht treaty theoretically set strict debt-to-GDP ratios, making it unnecessary.