Markets wary of vague pledge on Greek bailout

Currency markets today snubbed European leaders' vague pledge of support for Greece in case it defaults on debt, sending the euro down against the US dollar and doing little to halt fears of market contagion.

The euro traded near eight-month lows — just above $1.37 — having been as high as $1.38 earlier in the day on hopes of more substantive Greek bailout news. The euro was $1.51 in December.

The 16 European countries that use the euro said they were ready to take "coordinated measures" if necessary to help out of its debt crisis.

But European Union President Herman Van Rompuy, speaking at a summit of 27 EU leaders in Brussels, gave no firm offer of financial aid to Greece and insisted that Greece hadn't asked for any.

"Euro-area members will take determined and coordinated action if needed to safeguard stability in the euro zone as a whole," he told reporters, reading out a statement.

This failed to soothe traders seeking concrete assurance that the 27-nation European Union can help Greece stave off a default and keep the crisis from spreading to other vulnerable countries, threatening Europe's hesitant economic recovery.

Analysts said markets are disappointed. Neil Mackinnon, global macro strategist at VTB Capital said, "it just looks like a pledge of solidarity, but no actual details of a program which is why the euro is still in the doldrums."

"Unless, there's further news out later this afternoon, the markets will consider the EU summit response as a disappointment," he said.

Markets see Greece at risk of defaulting on its massive borrowings because it faces several years of sluggish growth and mounting debt that current austerity plans may not be able to stem. Those fiscal problems have shaken the euro and exposed the vulnerability of Europe's monetary union in times of crisis.

Euro members countries agree to limit their budget deficits to 3 percent of gross domestic output because overspending can undermine their shared currency. But those deficit rules have been broken repeatedly and have not been enough to keep Greece and other countries from getting into trouble.

Among possibilities for Greece that have been floated in recent days are EU member countries guaranteeing Greece's debt, a special credit line for the Greek government, and bilateral loans.

German Chancellor Angela Merkel talked down a full financial bailout, but said other European governments would not leave Greece in the lurch.

"We won't let Greece be alone but there are rules and they have to be respected and based on that we'll issue a statement and an explanation," she said.

French government sources said France and Germany want to offer only "political support" at this stage and that more precise plans of real help would come at a later stage. The official, who spoke on condition of anonymity because of the sensitivity of the issue, did not provide specifics.

A senior German official said that "no concrete aid measures are being considered for Greece or other countries" and that "there is no financing need at the moment" for Greece.

He said he expects Greece to come clean with details of spending cuts this year, going far beyond general promises to overhaul its public sector and reform pensions and health care.

Greece needs to borrow €54 billion (nearly $75 billion) from bond markets this year to plug its budget gap. So far it has been able to borrow from markets but is facing increasing interest costs as markets price in higher risk of a possible default.

Greek Prime Minister George Papandreou has promised to reduce Greece's deficit to 8.7 percent of gross domestic product this year, from 12.7 percent last year, the highest in the EU and four times above an EU limit.

But markets doubt Greece's credibility after it admitted falsifying statistics for years to make its deficit look smaller. They also worry that Greece can't carry out any cuts because it risks social unrest.

Greek workers shut down schools, grounded flights and walked out of hospitals Wednesday to protest austerity measures, and on Thursday, taxi drivers in Athens went on strike. A much broader national strike is planned for 24 February.