Markets respond as Greece vows to put its house in order

28th September 2011, Comments 0 comments

Greece promised Germany it was committed to its painful reform programme Tuesday, as European governments stepped up moves to prevent a default by Athens which could be calamitous for the eurozone.

The markets responded well on hopes that Europe's leaders were closing in on a solution to the public debt crisis threatening the 17-nation bloc.

German Chancellor Angela Merkel headed into a private working dinner with Greece's prime minister, George Papandreou, pledging every assistance as Athens implements tough austerity reforms.

Their meeting is crucial, as Greece is seeking the release of a new tranche of bailout funds to avoid default on debts and other obligations.

"We want a strong Greece in the euro area... Germany is ready to give all the help required," Merkel said.

After a day of wooing businessmen in the German capital, Papandreou said Greece was determined to implement reforms "not only to overcome the present crisis, but to make Greece more competitive".

In Athens, Greek deputies approved a controversial property tax Tuesday in a bid to plug a budget hole and help unlock bailout funds needed to prevent a sovereign debt default that could come as early as next month.

The main European markets rallied on the day's developments: the Paris CAC-40 index soared 5.7 percent, Frankfurt's DAX jumped 5.3 percent and London's FTSE-100 index climbed 4.2 percent.

In the United States, the Dow Jones Industrial Average added 1.3 percent.

Asian markets were also up in early trade Wednesday. In Tokyo the benchmark Nikkei 225 index rose 42.45 points or 0.49 percent to 8,652.40.

South Korean stocks rose 0.62 percent but in Hong Kong investors were more wary, with prices slipping 1.11 percent.

In Germany, Papandreou told an audience of German business leaders that the rescue plan was not just about keeping Greece afloat.

"It is an investment in a different Greece, a Greece that is confronting problems that were overlooked for decades."

Greece was making a "superhuman effort" to bring down its debt, he insisted.

"I can guarantee that Greece will live up to all its commitments. I promise you we Greeks will soon fight our way back to growth and prosperity after this period of pain."

Papandreou is working hard to allay fears that that Greece could default.

The next instalment of debt aid due under its May 2010 bailout from the European Union and the International Monetary Fund is in the balance until EU and IMF officials have reviewed the country's finances to their satisfaction.

Athens says it needs the eight-billion-euro payment if it is to keep paying its bills.

Chief auditors from the IMF, EU and the European Central Bank will return to Athens on Wednesday or Thursday, eurozone chief Jean-Claude Juncker told the European Parliament.

They broke off their review of Greece's finances nearly a month ago, over reported concerns about reform implementation.

Greek finance ministry officials say Athens may announce a number of privatisation deals this week as the debt-wracked country comes under increasing pressure from its creditors to meet tough fiscal targets.

Papandreou welcomed a July decision by European leaders to expand the scope and size of the EU's rescue fund -- the European Financial Stability Facility (EFSF).

"For Greece, it gives us the breathing space for our reforms to yield results," he said.

Germany has made it clear it opposes ploughing more money into the proposed 440-billion-euro ($590 billion) EFSF.

"There is full agreement within the federal government that the EFSF, as it will be voted on by parliament on Thursday, stands precisely as was agreed on July 21" by eurozone leaders, German government spokesman Steffen Seibert said.

Merkel said it was "of the utmost importance" that the legislation pass.

Media reports have suggested that international rating agencies could downgrade the top-notch "AAA"-rating on German sovereign debt if the fund's ceiling is increased, because Germany, as Europe's paymaster, would have to foot most of the bill.

Earlier, German Foreign Minister Wolfgang Schaeuble bristled at remarks made Monday by US President Barack Obama, who said the eurozone debt crisis was "scaring the world."

"It's always much easier to give advice to others than to decide for yourself," he said.

"Even if Obama is thinking the opposite, I don't think the problems of Europe are the reason for the problems of the US."

But US Secretary of State Hillary Clinton repeated Washington's concerns Tuesday.

"We expect European leaders to continue to ensure that the response to this crisis is strong, flexible, and most importantly, effective," she said.

© 2011 AFP

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