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Greece Seeks Washington’s Support to Curtail Market Speculation

March 8, 2010 at 12:00 AM EST
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Greece's Prime Minister George Papandreou visited Washington and several other nations this week to ask for support cracking down on speculative trading to help Athens employ reforms to help its budget crisis.
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JUDY WOODRUFF: Finally tonight: The Greek prime minister is in Washington, trying to head off foreign speculation against his embattled economy.

Greek Prime Minister George Papandreou made Washington the last stop on a four-nation tour he would rather not have taken. But Secretary of State Hillary Clinton offered warm words.

HILLARY RODHAM CLINTON, U.S. secretary of state: I know these are difficult days in Greece, but I want to commend the prime minister for his leadership in tackling the challenge that he confronted upon taking office. We support Greece and the tough economic measures it is taking to address this issue.

JUDY WOODRUFF: The issue Papandreou faces, his government’s finances are on the verge of collapse. So, over the weekend, he made calls in Luxembourg, Berlin, and Paris, all to drum up support for his plan to pull Greece back from a crisis that threatens European stability.

A combination of profligate spending, systemic corruption and then the global recession have put Greece at risk of default on its $400 billion debt, much of which is held by European banks. Papandreou’s socialist government was elected just last fall. And he responded to the crisis with major cuts in public spending and big tax hikes.

But the budget cuts have been met with angry protests by many Greek public employees and other workers in Athens and elsewhere. The anger boiled over outside parliament last Friday, as lawmakers approved the plan. Public sector employees have also gone on strike. And some on the streets of Athens say the government is targeting the wrong people.

NIKOS GIOULOS, Greece (through translator): Everyone knows who needs to pay, but it’s the worker who always pays.

JUDY WOODRUFF: Others worry that such major tax hikes could stifle a recovery.

MAN (through translator): The mere fact that the income and purchasing power of a huge chunk of society are being reduced, this will have constant repercussions on all aspects of life.

JUDY WOODRUFF: There are also fears the crisis could spread beyond the borders of Greece. A debt default could imperil large European banks holding Greek government bonds. And with several smaller European economies, like Portugal, facing major debt problems of their own, currency speculation has driven down the value of the euro, the common currency for 16 European states.

In Paris yesterday, French President Nicolas Sarkozy denounced the speculators and gave the Greeks a strong vote of confidence.

NICOLAS SARKOZY, French president (through translator): Greece has shown that it is capable of regaining its credibility by its own efforts. But I want to be very clear. If necessary, the member states of the Euro Zone will fulfill their commitment. There can be no doubt on this. The euro is our currency. The euro implies solidarity.

JUDY WOODRUFF: Whether that solidarity crosses oceans is another matter.

Neil Irwin is a financial reporter for The Washington Post. He says U.S. officials and markets still remember what happened in Asian markets in the late 1990s.

NEIL IRWIN, business reporter, The Washington Post: As they realized they were taking losses in Thailand, they started to look around and say, you know, is something going wrong in Korea as well, and Indonesia, and other nations?

Before you know it, all emerging markets around the world, especially Russia, are having an all-out crisis. And that had a real impact on the global economy. The fear is that Greece could be the first — the first step in the same kind of thing this time around.