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German Chancellor Angela Merkel and French President Nicolas Sarkozy say they are "convinced that the future of Greece is in the euro zone."
German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou held an emergency teleconference on Wednesday night to calm markets and quash chatter that Greece was about to default on its debt or leave the euro, The Associated Press reports.
A French statement issued after the call said that Sarkozy and Merkel “are convinced that the future of Greece is in the euro zone.”
Papandreou assured Sarkozy and Merkel that he is committed to meeting the deficit-reduction targets that will allow Greece to continue receiving international bailout money, statements from the governments in Athens, Berlin and Paris said.
In recent days, Greece has agreed to extra austerity measures, including a property tax designed to bring in 2 billion euro and the cutting of 20,000 public sector jobs by November.
“The recent measures adopted are a guarantee that the targets of the Greek program can be achieved,” the three leaders said, according to the Financial Times.
According to the AP:
Greece currently relies on funds from last year's euro 110 billion ($150 billion) international bailout to service its debt and pay salaries and pensions. But the lifeline could be cut if the country continues to miss fiscal and reform targets.
The quarterly payout depends on reviews by Greece's international debt inspectors — the European Commission, European Central Bank and International Monetary Fund, known as the troika.
The next batch worth euro 8 billion ($11 billion) is due in late September, but there were fears the troika would not approve its disbursement after the debt inspectors suspended their review earlier this month. They are due to return to Athens in coming days. Without the next installment, the country has enough cash to keep it going only until mid-October.
If Greece goes bankrupt, it will likely destabilize other struggling economies in Europe and impact banks, since many have large holdings of Greek government bonds. French banks Societe Generale and Credit Agricole saw their credit ratings downgraded on Wednesday, due in large part to their exposure to Greek bonds.
The remarks were “a good thing,” John Doyle, a Washington-based strategist at currency-trading firm Tempus Consulting Inc., told Bloomberg News. “They’re just words at this point, but that’s why we’re seeing the euro pop against the dollar.”