(Jew) Sarkozy Says EU Must Back Greece or Put Monetary Union at Risk

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Sarkozy Says EU Must Back Greece or Put Monetary Union at Risk
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By John Fraher and Lorenzo Totaro

March 6 (Bloomberg) -- French President Nicolas Sarkozy said the European Union must support Greece or risk destroying the euro as Prime Minister George Papandreou heads for Paris to lobby support for the debt-laden country.

"If we created the euro, we cannot let a country fall that is in the eurozone," said Sarkozy, who hosts Papandreou in Paris tomorrow. "Otherwise there was no point in creating the euro. We must support Greece because they are making an effort."

EU leaders have so far refused to give financial aid to Greece and have ordered the government to cut its budget deficit, the EU's highest, on its own. While Papandreou says steps taken this past week to slash the shortfall warrant more help from the EU, German Foreign Minister Guido Westerwelle said today that his country is "not going to write a blank check."

Papandreou is touring Luxembourg, Berlin, Paris and Washington after his government passed a 4.8 billion euro ($6.5 billion) austerity package yesterday. German Chancellor Angela Merkel, who met him yesterday, said the question of a bailout "absolutely doesn't arise" and the steps taken to cut the deficit make her optimistic that a rescue won't be needed.

Sarkozy, who didn't say financial support would be forthcoming in his speech today, will meet Papandreou in the Elysee Palace around 6 p.m. local time tomorrow. They will brief reporters afterwards.

Merkel is rebuffing any talk of a rescue even as EU nations are said to be working on a contingency bailout plan for Greece to be funded by member governments. Greece sold 5 billion euros of bonds on March 4, with investor demand more than three times the offering, the day after Papandreou announced the package of tax increases and spending cuts.

Bond Sale

The 6.25 percent bonds Greece sold rose to about 99.4 cents on the euro to yield 6.32 percent, compared with an issue price of 98.94 cents, according to EFG Eurobank Trading prices on Bloomberg. The risk premium that investors demand to buy Greek bonds over comparable German debt, the European benchmark, fell 4 basis points to 293 basis points.

Papandreou is indicating that Greece may still need financial support and is prepared to turn to the IMF if necessary, calling it a "final resort" on March 3.

That prompted a rebuff from European Central Bank President Jean-Claude Trichet a day later as finance officials fret such a move would signal the EU isn't capable of solving its own problems. Italian Finance Minister Giulio Tremonti nevertheless today refused to rule out a role for the IMF in any aid package.

IMF Role

"The IMF should act as a bank" in any rescue, he told reporters in Venice. "We finance the IMF so it can use the funds around the world. Why not use that capital with the IMF acting as a bank with its know-how?"

Tremonti also said that the EU could also issue "eurobonds" or coordinated the sale of euro-denominated government bonds to better counter "financial speculation."

As Greece calls for more help, Merkel yesterday turned her focus to restricting the use of derivatives to halt "speculators" from exploiting countries' budget deficits. Greece has done its work and Europe and the U.S. must now ensure that financial-market speculators aren't allowed to inflict further damage on Greece or on other countries, she said.

"Credit-default swaps, where you insure your neighbor's house just to destroy it and make money from it, that's exactly what we have to curb," Merkel said at a joint press conference in Berlin yesterday with Papandreou.

Speaking in Venice today, French Finance Minister Christine Lagarde said today that credit-default swaps "need to be much more and much better regulated."

To contact the reporters on this story: Lorenzo Totaro in Rome at http://www.bloomberg.com/apps/news?pid= ... EtlU&pos=3