summit

By Tony Czuczka and Brian Parkin Feb. 10 (Bloomberg) — European Union leaders meeting in Brussels tomorrow will probably press Greece to present more detailed budget cuts and stop short of announcing an aid package for the debt-stricken nation, a German government official said. As officials in Berlin, Paris and Brussels thrashed out potential aid plans to add to political pressure, Greece faced street protests and strikes that shut down schools, hospitals and flights in response to government plans to freeze wages and cut benefits. Germany and France are leading talks to provide help for Greece under “tough pre-conditions,” said Markus Ferber , a member of German Chancellor Angela Merkel ’s bloc in the European Parliament, citing discussions his group had with the federal officials in Berlin. He said they prefer a bilateral approach over an EU plan. “It’s a tightrope walk for European governments,” said Henrik Enderlein, a political economist at the Hertie School of Governance in Berlin. The dilemma is “to signal confidence, because there is no technical reason why Greece should default,” while avoiding a “full-scale bailout.” For weeks, European officials insisted that no bailout was planned and that Greece’s effort to reduce its deficit, estimated at 12.7 percent of gross domestic product, should be given a chance to work. The euro’s slide to a nine-month low and a slump in bond prices prompted leaders to drop their resistance to rescuing Greece and to protect the rest of the euro region from market turmoil. Prospects that the EU would extend a financial lifeline to Greek Prime Minister George Papandreou at the summit sent Greek bonds to their biggest rally since the introduction of the euro today. German Briefing German Finance Wolfgang Schaeuble told lawmakers in Berlin today that options for helping Greece extend beyond loan guarantees, according to a lawmaker who attended today’s briefing in Berlin and spoke on the condition of anonymity because the discussions were private. EU rules on aid are more flexible than the German government first thought, he said. Schaeuble told reporters today he had “no intention to participate in speculation.” EU law bars the ECB or national central banks from bailing out EU countries through buying their debt or offering loans, the German parliament’s research unit said in a report published yesterday. “Help for Greece is obviously on the way,” said Joerg Kraemer , chief economist at Commerzbank AG in Frankfurt. “The EU seems bent on making sure that it reacts in time and not at the last minute.” EU Rules An EU official said today all options are being considered, including a standing facility to provide credit guarantees. The official told reporters the measures under consideration could be national or directed by the EU. An announcement of a plan may be made today, said the official, who declined to be identified because the talks remain confidential. Papandreou, who met French President Nicolas Sarkozy in Paris today, has failed to convince investors that his plan of spending reductions, a wage freeze and stepped-up tax collections to cut the EU’s biggest deficit will work. “We have submitted a very specific stability and growth pact to the European Commission and it will be implemented in every detail,” the Greek leader told reporters in Paris today. EU leaders and European Central Bank President Jean-Claude Trichet will discuss Greece over lunch tomorrow, though no decision on aid has been taken and none is on the agenda, the German official told reporters in Berlin today on condition of anonymity. The onus will lie with Papandreou to send the strong signal that markets are waiting for, the official said. Spread Narrows Signs of a rescue helped ease investor concerns that Greece’s worsening finances would derail the global recovery. The risk premium investors demand to buy Greek debt over comparable German bonds tumbled for a second day to 2.80 percentage points, the lowest since Jan. 19. It reached as high as 3.96 percentage points on Jan. 28. The gains in Greek securities may be short-lived. There will be “blood on the walls” in credit markets if the EU fails to agree to a package for Greece tomorrow, Gary Jenkins , head of credit strategy at Evolution Securities Ltd. in London, said in a note to investors. “They must be aware of that and thus it is an extremely unlikely scenario,” he said. The French government is “busy working” on possible solutions for Greece and Sarkozy plans to hold a joint press conference with Merkel after the summit, spokesman Luc Chatel said in Paris today. Both leaders have a united stance ahead of the summit, the German official said. ‘Strict Conditions’ Aid would come “under strict conditions and if the Greek government undertakes far-reaching state reforms,” Michael Meister , financial-affairs spokesman for Merkel’s Christian Democratic Union, said yesterday. Merkel, facing rising unemployment and declining support for her three-party coalition, may face domestic criticism over an attempt to help Greece. Lawmakers from her Free Democratic Party junior coalition partner have spoken out against aid for Greece. “We don’t help the alcoholic by giving him another bottle of schnapps,” Frank Schaeffler , the party’s senior member on the finance committee, said in a speech to lawmakers in Berlin. To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net ; Tony Czuczka in Berlin at aczuczka@bloomberg.net