EU Finance Ministers Urged to Skirt Question of Greek Default - Bloomberg.com

If asked about the risk of a Greek default, ministers were advised to say they were “fully confident” that the country “will rise to this challenge,” according to the confidential EU memo, which was dated Feb. 5. The note’s recommendation on sidestepping such questions was called a “defensive point.”

The document titled, “Elements of External Communication on the Fiscal Situation in Greece,” was prepared by a committee of officials from finance ministries, the European Central Bank and the European Commission. The talking points aim to help ministers field questions before a Feb. 15-16 meeting that will discuss Greece’s budget plans. EU leaders meet on Feb. 11.

Officials are struggling to convince investors that Greece can tackle a fiscal crisis that’s roiled bond markets across the Euro region’s southern fringe and hurt global stock markets. While ECB President Jean-Claude Trichet said Feb. 4 he’s “confident” Greece can cut its budget deficit from 12.7 percent of gross domestic product, Greek two-year bond yields have since surged to the highest in almost a decade and credit- default swaps for Spain and Portugal have touched records.

Greece has pledged to bring the deficit back within the EU limit of 3 percent in 2012 and has said it will raise some taxes, freeze wages for civil servants, crack down on tax evasion and raise the retirement age to help trim the Shortfall.

‘Urgent Need’

“We welcome these steps at the time when high interest rate premia show that markets remain cautious,” the draft document said. “There is an urgent need to implement the corrective measures in order to regain the confidence in financial markets.”

The premium investors demand to hold Greek 10-year bonds instead of benchmark German bunds widened to almost 400 basis points last month, the highest since the year before the Euro’s debut in 1999.

The EU document also says that officials should underscore the need for Greece “to ensure the accuracy of the statistical information so that the implementation of the Council recommendations can be effectively monitored.”

Trichet yesterday decided to leave a meeting of policy makers in Sydney one day early to attend the EU summit, fanning speculation that Greece will get assistance from the EU. The Euro rallied and emerging-market stocks recovered from the worst three-day slide in a year.

To contact the reporter on this story: Meera Louis in Brussels at mlouis1@bloomberg.net