Faced with the possibility of the euro zone debt crisis spreading from Greece, Ireland and Portugal to the much bigger economies of Italy and Spain, European Union leaders are poised to hold an emergency summit, perhaps as early as Friday.
The region’s finance ministers have now acknowledged that Greece will almost certainly partially default on its debts which means private lenders – banks that have bought Greek government bonds – would not get all of their money back.
Some of those lenders are themselves in a perilous state. Olli Rehn, European Commissioner for Economic and Monetary Affairs, told reporters: “The current state of the crisis is a severely intertwined combination of sovereign debt crisis and banking sector fragilities and we cannot solve one without solving the other. We need to solve both.”
The ministers have also been talking about which banks are at risk and how they can be helped.
Polish Finance Minister Jacek Rostowski chaired the news conference after the ministers’ meeting as Poland is currently the EU president.
He said: “The discussions were productive, particularly on this issue, and reassuring on this issue of the backstops and action plans that all need to be in place should there be a requirement for action by banks to increase their capitalisation.”
The finance ministers did hint they would help Greece by lending it money at lower interest rates and over longer periods, but Athens and the financial markets are getting frustrated at how slowly it is all proceeding.