European leaders were making plans for a possible special euro zone summit on Greece today, with German chanellor Angela Merkel laying down a pre-condition for such a summit of a second Greek bail-out being agreed.
Mrs Merkel said Germany wants a quick solution to the Greek crisis but it has to be feasible, and a completed plan is a pre-requirement for holding any special euro zone summit on Greece.
‘As to a possible summit of the euro and heads of government and states, I think the pre-condition for such a summit meeting would be that we would be in a position to take a decision and finalise the programme on Greece,’ Merkel told journalists during a visit to Nigeria.
‘But you know that everyone is busy working to ensure that that happens. The finance ministers have made it clear that we are trying to do this as quickly as possible.’
Such a summit will take place ‘when the time is right’, said a European Commission spokesperson.
'Such meetings are part of the discussions, which are ongoing, and they will take place when the time is right,' Pia Ahrenkilde Hansen told a news briefing.
She indicated that 'intensive work' was still ongoing on agreeing on a meeting.
The International Monetary Fund's Ajai Chopra today urged European leaders to move quickly to deal with the euro zone debt crisis.
Speaking at a press conference in Dublin, he said the IMF welcomed a statement earlier this week from euro zone ministers, who said they were ready to take further measures to deal with Europe's debt crisis.
But, flanked by representatives of the ECB and the European Commission, Mr Chopra stressed that there should be 'prompt implementation' of these measures, adding that what was needed was a European solution to a European problem.
In Athens, Greek Prime Minister George Papandreou told a cabinet meeting that the next few days will be 'particularly crucial' for the future of Greece and the euro zone.
'We are going to face up to the challenges and to the negotiations while keeping cool but also being alert,' he said.
Belgian Prime Minister Yves Leterme noted during a session of parliament the possibility of a 'decision in the coming days during meetings of heads of state and government.'
In Rome, Greece's private creditors met for the third time in less than a month with European officials amid efforts to involve banks, insurers and pension funds in the new bail-out.
European Union President Herman Van Rompuy had sought to convene an emergency meeting of the euro zone's 17 leaders tomorrow in a bid to resolve a deep rift over a second bail-out of Greece.
The uncertainty over the new Greek bail-out has caused the debt crisis to spill over to Spain and Italy, which have seen their borrowing costs soar to record, high levels.
Euro zone finance ministers have tasked their treasury directors with finding common ground on a new Greek rescue plan, which has stalled because of deep division over the private sector's possible participation.
Germany, Finland and the Netherlands insist that bankers, insurers and pension funds should share the pain in the next bail-out, even at the cost of allowing Greece to default on its massive debt.
The European Central Bank and several euro zone nations object to letting Athens fall into a default.
With little chance of hammering out a deal by tomorrow, officials decided to delay the summit, which could take place on Monday depending on the progress of negotiations, a diplomat said.
'Most likely, the meeting will take place at the beginning of next week,' the diplomat told AFP.
Bernanke: Euro zone a risk to US economy
A shaky euro zone, with bond market contagion hitting Italy and Spain, poses a risk to the United States, US Federal Reserve Chairman Ben Bernanke said today.
Speaking to senators on Capitol Hill, Bernanke played down the immediate impact on the United States of festering problems in Greece, Ireland and Portugal, 'because the three countries... are really a very small part of the European continent and the European economy.'
But he acknowledged that, the United States' own problems aside, euro zone problems have been causing 'a good bit of anxiety in markets.'
'That's been affecting our economy, both last summer and now recently as well.'
Bernanke said that the exposure of US financial institutions, mutual funds and money market funds to the three countries 'are quite small and manageable'.
But 'were there to be a significant deterioration in conditions in Europe, we would see a general increase in risk aversion, declining asset prices, a lot of volatility in markets,' he told senators.
'And we would suffer from that more general financial situation than we would from the direct exposures to those sovereign countries.
'Greek debt to peak at 161% of GDP - ECB
Meanwhile, the European Central Bank has estimated that Greece's public debt will peak at 161% of gross domestic product (GDP), or economic output, in 2012.
The debt ratio should then decline to 127% of GDP by 2020, the ECB said in its monthly bulletin for July.
'Achieving this downward trajectory crucially hinges on the government's willingness and ability to persevere with fiscal consolidation and implement the structural reform and privatisation programmes in full,' the bank said.
A study of the sustainability of Greece's debt, currently at around €350 billion, concluded that the debt situation largely depended on factors that are under the Greek government's control.
Athens is in talks with the European Union and the International Monetary Fund on a second financial rescue package worth around the same as the €110 billion deal agreed last year.
Greece is not able to currently borrow money on private equity markets at rates it can afford, and must thus seek funds from the EU and IMF.
Greek Prime Minister Georges Papandreou warned today in a German press interview that if such financial aid did not come quickly, economic reforms in the country would fail.
European Commission regrets downgrade
The European Commission has voiced regret after the ratings agency Fitch severely downgraded Greece's credit status.
'We do regret and hardly understand this decision by Fitch,' Ahrenkilde Hansen told a news briefing. 'We just don't understand this decision at this time.'
She noted that the EU and IMF this month cleared €12 billion in loans to Greece, the fifth instalment from last year's €110-billion bail-out, after the Greek parliament passed austerity measures demanded by creditors.
'The EU and the IMF have just agreed to release another tranche of the financial support to Greece, which is clear evidence that the conditions for the disbursement have been met,' the spokeswoman said.
Fitch cited the absence of a new EU-IMF programme for Greece and growing uncertainty over the role of private investors when it downgraded the Greek debt to junk status yesterday.
Meanwhile, bailed-out Portugal will see its economy shrink 2.3% this year and 1.7% in 2012, with a recovery only coming in 2013, Finance Minister Vitor Gaspar said today.
The International Monetary Fund and the European Union, which bailed out debt-stricken Portugal earlier this year, based their help on forecasts for a contraction of 2.2% in 2011 and 1.8% in 2012.
'The economic recovery will only occur in 2013,' Gaspar told a press conference.
