Europe tries to calm finance markets

European leaders today tried to convince shaky markets the Greek debt crisis will not spread and derail the hesitant economic recovery.

France and Italy approved their share of a €110bn bailout to keep Greece from imminent default, while Germany’s yes appeared imminent as the 16 leaders from countries using the euro headed for a summit in Brussels.

The meeting – initially called to sign off on the bailout and draw lessons for the future – faces the challenge of urgent crisis management, after the euro dropped to its lowest level in 14 months and bond markets dumped Greek debt.

EU leaders have insisted for days the Greek financial implosion was a unique combination of bad management, free spending and statistical cheating that does not apply to any other eurozone nation, such as troubled Spain or Portugal.

They said the bailout should contain the problem by giving Greece three years of support and preventing a default when it has to pay €8.5bn in bonds due on May 19.

Yet the markets have taken little heed. Stocks, Greek bonds and the euro plunged even after the head of the European Central Bank, Jean-Claude Trichet, tersely underlined that “Portugal is not Greece. Spain is not Greece” on Thursday.

Along with the eurozone meeting, the G-7 finance ministers will hold a teleconference on the crisis.

And key leaders like France’s Nicolas Sarkozy, German Chancellor Angela Merkel and Mr Trichet will meet ahead of the summit seeking to a common strategy to soothe the markets.

After struggling to get ahead of the crisis for weeks, European governments are now underlining their determination to act by speeding approval of their contributions to the emergency loan package for Athens, hoping to contain the threat to their currency to just one country.

The consequences of failure could be dire. Many economists think Greece will eventually default anyway, which could lead to sharply higher borrowing costs for other indebted countries. Default or contagion to other countries could lead to panic, intimidating consumer spending and making banks fearful to lend money.

In Germany, where bailing Greece out is unpopular, the lower house of parliament approved the package and final passage was expected later.

With Italy and France, that accounts for over two-thirds of the European part of the bailout package. The International Monetary Funds adds €30bn on its own.

Earlier France’s parliament adopted a budget amendment to release French funds for Greece’s bailout.

Greek politicians approved drastic austerity cuts yesterday that will slash pensions and civil servants’ pay and further raise consumer taxes. The measures were a needed to secure international rescue loans.

Greek borrowing costs hit another record high today and shares on the Athens stock exchange were lower amid losses in European markets and fears that Greece will have difficulty implementing its austerity plan.