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Greek debts threaten the euro

Summary

12 February 2010

European leaders at a summit in Brussels have been discussing the Greek economy and have agreed to help the country with its financial crisis. The aim is to protect the economies of countries using the euro.

Reporter:

Jack Izzard

Report

This summit was supposed to be a chance for Europe's prime ministers and presidents to discuss ways to promote growth and jobs, but with the euro single currency facing its worst ever crisis, the original agenda has long since been scrapped. Instead, all the focus will be on how to shore up Greece's precarious finances. Though the Greek economy is relatively small, its membership of the euro zone means its fate is wedded to that of the stronger currencies in the single currency.

For years Greek governments have spent more than they earned in taxes and borrowed to make up the shortfall. That public debt now threatens to engulf the economy. Greece's new socialist government has introduced some drastic austerity measures, such as a public sector pay freeze and fuel price increases to try to reduce the deficit, but the prospect of a default has prompted huge falls on the Greek stock market. The uncertainty has spread to other big euro debtors like Spain and Portugal. It's this contagion that most worries euro zone leaders as it risks destroying confidence in the euro as a whole.

So what to do? By underwriting the Greeks' debts they hope to stop the financial turbulence spreading and protect themselves in the process. But such largesse is not without risk. If they do end up having to pay Greece's debts, the leaders meeting here know it will be both expensive and unpopular with the voters back home.

Jack Izzard, BBC News, Brussels