Greece seeks EU support for severe austerity

French President Nicolas Sarkozy says that Europe will show solidarity with Greece and will work with its European partners to fight against speculation against the euro.

Greek Prime Minister George Papandreou addresses the media after a meeting with German Chancellor Angela Merkel in Berlin

Greek Prime Minister George Papandreou addresses the media after a meeting with German Chancellor Angela Merkel in Berlin

PARIS, France — French President Nicolas Sarkozy says that Europe will show solidarity with Greece and will work with its European partners to fight against speculation against the euro.

Greek Prime Minister George Papandreou has expressed appreciation for France’s support as his government embarks on a severe austerity plan to reduce its massive 12.7 per cent budget deficit.

Sarkozy and German Chancellor Angela Merkel are seeking to calm markets and bring down Greece’s high borrowing costs.

Sarkozy and Papandreou met Sunday ahead of the Greek prime minister’s trip to Washington.

Merkel avoided giving Greece a commitment of financial assistance, as Athens was rattled by more strikes and violent protests by unions outraged by harsh economic austerity measures.

Greece didn’t ask for financial support, and Germany didn’t offer any in talks Friday between Merkel and Papandreou, while Merkel said there would be a common push to crack down on market speculation that has led Greece’s cost of borrowing to skyrocket.

“I repeat that Greece has not requested financial support … and I thank (Germany) for its co-operation in facing speculators,” Papandreou said on the second of a four-city tour that began in Luxembourg Friday morning.

He will be in Washington on Tuesday.

“Germany can express its solidarity,” Merkel said, adding that she made it clear that “we are here to help, show understanding.”

Merkel added that her country could help Greece with its expertise and in other ways. Strict fiscal policy has helped propel Germany to Europe’s biggest economy.

But she didn’t give any specifics of how Germany would show solidarity, or what concrete steps will be taken to tackle speculators.

“The support was political support, without mechanisms,” government spokesman Giorgos Petalotis told reporters after the meeting, which was also attended by Greek Finance Minister George Papaconstantinou.

Still, the Greeks insisted they were satisfied with the outcome of the meeting, and had received all that could be expected.

“We need political and moral support and we got that today from the German government,” Papandreou said.

Earlier this week, the European Commission said it would call in market regulators and banks to discuss possible problems with the market for credit default swaps on sovereign debt.

The swaps are a form of insurance against a borrower defaulting on debt — and the market for them has swelled in recent weeks as traders weigh up the risk that Greece might not be able to repay its massive debt.

Merkel’s comments echoed previous remarks made this week amid market and media speculation that the European Union may be preparing some sort of bailout aimed at helping Greece cope with its economic woes.

Asked about media reports of a potential rescue plan being worked on by European nations, Greek government officials said they were unaware of any such discussions or plans.

Greece insists it has now done all it can. It says that if its latest euro4.8 billion (C$6.7 billion) austerity package, which was approved by Parliament on Friday and described by Merkel as an “inordinately important step”, doesn’t win the full support of the EU and the markets, it could be forced to seek help from the International Monetary Fund.

Earlier Friday in Luxembourg, Prime Minister Jean-Claude Juncker, who heads the informal eurogroup, said the problem should be dealt with inside the eurozone.

He said it was acceptable for the IMF to offer technical assistance, but insisted: “as the chairman of the euro group I’d like to exclude any further involvement of the IMF.”

The austerity measures have already sparked labour unrest in Greece, with strikes Friday grounding flights for four hours and halting public services, and demonstrations in central Athens turning violent.

Riot police used tear gas and baton charges to disperse rioters who chased ceremonial guards in 19th-century kilts and tasseled garters away from the Tomb of the Unknown Soldier outside the parliament. A top trade union leader was roughed up by left-wing protesters, while rioters smashed banks and storefronts.

It was the worst violence since Greece’s debt crisis escalated late last year. Police said seven officers were injured and five people were arrested.

Papandreou insisted the measures were the only solution.

“We had to take difficult decisions, but these decisions were necessary if we are to lead our country out of the crisis,” he said in Berlin.

About 7,000 people took part in the marches. Protesters also occupied a government printing press in a bid to stop the government formally publishing the new law sanctioning the austerity.

Greece’s financial troubles have shaken the European Union and its shared euro currency, whose rules were supposed to prevent governments from running up too much debt.

The centre-left government said it is seeking a total of euro16 billion (C$22.4 billion) in savings this year to reduce a budget deficit of some euro30 billion — over four times the EU limit as a percentage of annual output.

Despite raising euro5 billion (C$7 billion) from a successful 10-year bond issue Thursday, Athens remains under intense pressure from high borrowing rates.

French Finance Minister Christine Lagarde said Friday that President Nicolas Sarkozy would back Greece if its debt woes got it into real trouble.

Speaking to LCI television, she said Sunday’s meeting would focus on how the Greek government’s new austerity plans will be enacted. She gave no details of the potential emergency support.

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Associated Press Writer Nicholas Paphitis reported from Athens.