By Christian Vits
April 24 (Bloomberg) — European Central Bank officials rebuffed concerns the Greek budget crisis may spill over to other euro region countries such as Spain or Portugal.
“All countries in Europe without any exception have a lot of work to do,” ECB President Jean-Claude Trichet said after meeting with Group of 20 finance chiefs in Washington yesterday. At the same time, “of course Spain is not Greece,” he added.
Greek Prime Minister George Papandreou yesterday called for activation of a financial lifeline of as much as 45 billion euros ($60 billion) after the county failed to convince investors it can finance its debt. Market borrowing costs for Spain and Portugal have also risen as they struggle to cut budget deficits.
Portugal’s budget deficit reached 9.4 percent of gross domestic product last year and Spain had a shortfall of 11.2 percent, almost four times the European Union limit of 3 percent.
“The decisive aid for Greece is a signal to markets and the speculation that it is not realistic, to be expected or acceptable to attack other sovereigns,” ECB Governing Council member Ewald Nowotny said. “The fiscal situation of Spain and Portugal cannot be compared with Greece.”
Greek 10-year bonds snapped an eight-day decline yesterday after the government request for the loans. The yield premium investors demand to buy Greek debt over comparable German bonds fell to 559 basis points from 590 basis points April 22, which was the biggest gap since at least March 1998, when Bloomberg began compiling the generic prices.
At stake is the future of the euro 11 years after its creators gave the European Central Bank responsibility for interest rates while leaving budget policy in national capitals.
While Greece, with a national debt of almost 300 billion euros, had a budget deficit of 13.6 percent of output last year, it pledged to lower its funding shortfall below the EU’s 3 percent limit by 2012. The euro fell 7 percent against the dollar this year as Greece undermined confidence in the single currency.
Still, ECB Governing council member Christian Noyer also echoed his fellow colleagues’ remarks and dismissed suggestions that other euro area countries face problems similar to Greece.
“Is there a risk for other countries in the zone? No, the other situations have absolutely nothing to do with that of Greece,” Noyer said. “I know it’s a sport in the markets to look for ways of increasing volatility and make easy profits. But quite objectively when you look at the economic fundamentals, things are completely different. So there’s no need to worry about the extension of this crisis.”
–With assistance from Rainer Buergin, Aaron Eglitis and Mark Deen in Washington. Editors: Andrew Barden, Mike Millard.