Europe acts to plot Greek clean-up

(BRUSSELS) - Denying it publicly, whispering it privately but working frantically on detailed scenarios, Europe is at last acting to stem a haemorrhaging of financial credibility unleashed by Greek profligacy.

Leaders "at the highest level" were on Friday engaged in intensive "reflections" about how to help debt-stricken Greece, with plans being actively "worked on" ahead of an EU summit on February 11, a senior diplomat told AFP.

The latest sign that the European Union is squaring up to the biggest crisis to face the euro, the eurozone single currency, follows discreet briefings with selected international newspaper journalists this week.

Amid firm denials stressing that Greece must live up to its obligations on its own, despite a sharp fall in the the euro against the dollar over recent months, Europe may have little real choice if the difficulties persist.

"Greece is effectively the 'canary in the coalmine'," said analyst James Chappell of Olivetree Securities, referring to birds once sent down mine shafts to check oxygen levels to make sure the mines were safe for humans.

"A clean resolution is important to send the correct signals to markets," he underlined.

The question for the EU is whether that resolution can be obtained solely through austerity in Athens or whether a helping hand is needed.

With 8.0 billion euros successfully raised from one bond issue earlier this week, "Greece does not have a problem re-financing its debt," another European source said, with the upshot that "a bailout is not necessary."

But that comment can be seen in light of public efforts to talk down a willingness by key national governments to step in, which could send the wrong signals to Greece and every other debt transgressor.

"In the utterly improbable case that Greece defaults, in terms of its relative economic weight, it would be as if the Auvergne region in France defaulted," the source added. "Would that wreck French state guarantees? No."

Greece is struggling under a massive debt of over 294 billion euros (412 billion dollars), a runaway public deficit estimated at 12.7 percent of output, a triple downgrade of its sovereign debt ratings and doubts over dodgy data.

As a Spanish 2009 deficit of 11.4 percent of output rang further alarm bells on Friday, on top of additional worries about Portugal, the euro was trading at under 1.40 dollars, way down from a November peak of 1.50 dollars.

The strains on the eurozone were further underlined with new data showing inflation up in January and 10 percent unemployment across the eurozone -- the highest rate since the currency was launched a decade ago.

"It is in the interests of the eurogroup they provide whatever assistance (is required)," Britain's finance minister Alistair Darling was quoted as saying in Davos by the Financial Times.

He added that London would not take part in any rescue as it is not a member of the eurozone. The same newspaper reported elsewhere that Britain and Ireland together account for 23 percent of Greece's total debt.

Germany and France each stressed their "confidence" that Greece will deliver, with a spokesman for German Chancellor Angela Merkel saying there is "no need to talk about other measures" and France's Christine Lagarde echoing that stance.

European Central Bank chief Jean-Claude Trichet has also dismissed suggestions Greece could be forced out of the 16-nation eurozone, asserting: "The euro club is a strong club with strong ties of reciprocal support."

"Bond markets are exerting a stifling pressure," Bank of Greece governor George Provopoulos bemoaned. But "the ball is in our court. How things develop is up to us," he insisted.