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Portfolio > Economy & Markets

Weakest Eurozone Countries Plead for Help at Brussels Summit

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The eurozone's weakest states on Friday pleaded for more help from their richer neighbors at a summit in Brussels, where leaders worked to thrash out a "comprehensive response" to the crippling debt crisis by the end of the month.

Markets remain unconvinced that countries like Greece, the crisis' first victim, will become financially self-sufficient anytime soon, despite a long series of brutal austerity measures.

"We are on track with our program, we have taken the pain to make our economy more viable," said George Papandreou, the prime minister of Greece, as he arrived in Brussels. "But now we need European decisions, strong European decisions to calm the market."

In his call for more assistance and understanding Papandreou was joined by newly elected Irish Prime Minister Enda Kenny. "I've come here with two days in government with a very strong mandate from the Irish people for an improvement in the terms of the EU-IMF deal," Kenny told journalists, referring to the country's €67.5 billion ($93 billion) bailout funded by the International Monetary Fund and other EU countries.

Meanwhile, Portugal — seen by many as the next most likely candidate for an international rescue — announced additional tax increases and moneysaving measures to convince other eurozonestates that it is doing its part to survive the crisis.

The pleas by now have a familiar ring. More than a year into the debt crisis, Europe still faces much the same problems as a year ago — except that after endless promises, negotiations, and two bailouts, jittery markets now appear at the end of their tether.

Greece and Ireland are reeling from the effects of steep budget cuts, while Portugal and much larger Spain are scrambling to avoid a similar fate. The governments of fiscally strong states like Germany, the Netherlands and Finland, meanwhile, are reluctant to put up more money as pressure from their taxpayers grows.

While the negotiations go on, anxious investors have been driving funding costs for weak eurozonestates to new record highs and are questioning how the eurozone'sstragglers will ever garner the necessary economic growth to pay off their massive bills.

Data released Friday showed that Greece's budget deficit increased 9% in the first two months of the year as the country struggled to raise revenue amid painful austerity measures. The state budget figures are not the same as the general government deficit, which the EU uses to assess whether Greece is meeting its fiscal targets, but they nevertheless underline the challenge faced by Greece and Ireland to pay back debts as their economies shrink.

In light on those problems, investors and economists are demanding from EU governments new measures to tackle the crisis that go beyond massive national bailouts. They have set their hopes on an overhaul of the eurozone's€750 billion ($1 trillion) rescue fund that could see it start buying bonds on the open market or extend short-term liquidity to countries facing unexpected costs, such as big bank bailouts.

But at Friday's get-together — an important stopover ahead of the decisive EU summit on March 24-25 — those demands face an uphill battle.

The leaders are expected to commit to keeping labor costs and public deficits in check to make their economies more competitive and their government finances more sustainable. They also will discuss lowering the interest rates on Ireland's bailout and giving Greece more time to pay back its €110 billion ($152 billion) rescue loan.

But Germany, the eurozone'sbiggest economy, has ruled out using the €750 billion ($1 trillion) rescue fund to buy up bonds and generally help stabilize financial markets. Any help can only be given as a last resort, when the stability of the euro as a whole is in danger and even then only based on strict conditions, Chancellor Angela Merkel said.

Even lowering Ireland's interest rates from the current 5.8% and extending the maturity of Greece's loans from three and a half to seven years can only happen as part of a bargain, Merkel indicated. "It is clear that it will always have to be a give and take," she said.

Another important point is whether the eurozoneis prepared to boost its portion of the overall fund so it can actually lend out the advertised €440 billion. But that also is far from being resolved. At the moment, the so-called European Financial Stability Facility, which is supplemented by loans from the IMF and the European Commission, can only lend out about €250 billion, since governments had to over-guarantee their contributions to get a good credit rating for the facility.

"As far as I'm concerned, I'm only going to consider boosting guarantees if I know for sure that transferring money from north to south Europe will stop because we can nail down the stability pact," said Dutch Premier Mark Rutte, referring to the EU's often flouted stability and growth pact, which limits public debts and deficits. "If we can't agree on that, it is not possible for the Netherlands to even think about raising the guarantees."


Elena Becatoros in Athens contributed to this report.


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