Greek Crisis: EU Leaders Reach Deal Over Debt
2:56pm UK, Thursday February 11, 2010

Hazel Tyldesley, Sky News Online

European leaders have reached a deal to help Greece with a crippling debt crisis that threatens to spread to other eurozone nations, the EU President has said.

Belgian politician Herman Van Rompuy announced that euro area member states would take "determined and co-ordinated action if needed to safeguard stability in the euro area".

He said they would back the Greek government's action plan to reduce its deficit and would suggest additional measures if needed, "drawing on the expertise of the International Monetary Fund".

Commenting on the development, Sky News' political correspondent Joey Jones said it would be seen more as a staging post than a solution.

"It is going to take more than this to convince the markets that this problem is going to be dealt with satisfactorily," he said.

Greece is on the brink of financial collapse and there has been speculation that a giant bail-out might be needed.

Earlier, the Chancellor said Britain had "no plans" to help bail out the struggling nation.

Greek PM George Papandreou arrives at the summit of European leaders in Brussels

Greek troubles have plunged the euro currency into its biggest crisis since it was launched 10 years ago and served as an example of how interconnected the global economy is.

In theory, the country could be forced to abandon the euro altogether and return to the drachma, but realistically its wealthier neighbours are likely to bail it out with a joint loan.

However, the Chancellor Alistair Darling has said Britain has "no proposal" to help provide such a cash injection and added that it was a eurozone problem.

"I think it's important that Greece sticks to what it promised, that it delivers on its programme," he said.

"The euro area countries have said they want to manage the situation and there are discussions taking place."

Greeks march in Athens over the handling of the crisis, with sign saying: 'I Do Not Pay'

Market analyst David Buik told Sky News it was "a serious situation" but said he did not expect euro area member states to hand out cash.

"It seems extremely unlikely that Europe will in the full sense of the word make loans. What I think it will do instead is give guarantees for loans," he said.

"I suspect the International Monetary Fund will have to come in."

Greece came under intense EU pressure to slash spending after it revealed a massive and previously undeclared budget shortfall last year. The shortfall continues to shake financial markets and the euro, which is shared by 16 EU members.

Greece's deficit spiralled to more than 12% of economic output in 2009, more than four times the eurozone limit.

Prime Minister George Papandreou's new government has announced sweeping spending cuts that will freeze salaries and cut bonuses, and increase the average retirement age by two years to 63.

The government also announced new taxes, which it insists will increase the burden on the rich but benefit the poor.

Widespread protests followed the revelation of the tough measures.

Meanwhile, Belgium's former prime minister told Sky News he believed Europe should have acted sooner to find a solution to Greece's financial crisis.

Guy Verhofstadt, who is the leader of the Alliance of Liberals and Democrats for Europe, told Jeff Randall Live: "The problems were there last December, but it was a mistake for the European Union not to come with a package of measures earlier," he said.

"We have an ECB (European Central Bank), a monetary union, so it's our obligation to sort out the problem."

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