Greece's woes affect entire European Union

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BRUSSELS --- Wealthy European nations were moving closer toward swallowing a bitter pill Tuesday: rescuing Greece from its overspending before its debts drag down the euro and stock markets all the way to Wall Street.

Stocks in the U.S. and Europe rose on expectations of some kind of decisive action to prevent a Greek debt default that could spread to other countries, undermining Europe's hesitant economic recovery.

European Union leaders will issue a statement on Greece's debt crisis Thursday, officials said Tuesday -- without giving details of what it would say. Markets reacted well to news that European Central Bank President Jean-Claude Trichet would make a rare appearance at the summit in Brussels -- which they saw as confirmation that some kind of help would be discussed.

The crisis has exposed the EU's Achilles' heel -- states remain independent to spend as they wish, but their decisions can affect all 16 eurozone nations. Countries that help Greece risk having their own borrowing costs rise as a result and could see other struggling eurozone economies get in line for aid.

Bernard Valero, a spokesman for France's foreign minister, said Tuesday that "we must help" Greece. "It's about helping a friend ... we are the European family." He did not give details of that help.

Germany is also looking at ways to help Greece, but nothing has been decided yet, said Michael Meister, the deputy parliamentary leader of Chancellor Angela Merkel's party.

"The top priority for (the party) is a stable euro," Meister told Financial Times Deutschland. He added that any aid would come with the demand that the Greek government make radical spending cuts and economic reforms to get its house in order -- some of which Athens is already planning.

A bailout for profligate Greece could prove unpopular with German voters who are fond of economic prudence. European stocks inched up Tuesday.

The EU's statement will have to go beyond the bland words of confidence in Greece to stop the euro's slide. The euro is trading near an eight-month low against the U.S. dollar, and markets are increasingly pessimistic.

"Thursday's EU summit is the real litmus test," VTB Capital analyst Neil MacKinnon said. "If it fails to come up with any debt restructuring package or a quasi-bailout, then the pressure on the euro will increase."

Bailout boosts stocks

U.S. stocks rallied Tuesday, with the Dow average notching its best day in five weeks, as investors focused on reports Germany was considering a rescue package for debt-strapped Greece.

The Dow Jones Industrial Average finished up 150.25 points, or 1.5 percent its best one-day gain in both point and percentage terms since Jan. 4, the year's first trading session.

INDEX CHANGE CLOSE

Dow Jones +150.25 10,058.64

S&P 500 +13.78 1,070.52

Nasdaq +24.82 2,150.87

WALKOUT PLANNED

In response to Greece's plan to cut the pay of hundreds of thousands of civil servants as part of a tough new public-spending regimen, workers have a massive walkout planned for today and the promise of more strikes to come.

"It can't be that civil servants pay for the mistakes of past governments," said worker Christos Maggelis. "The only result of this policy is that they'll add more poor people to the number of poor already out there."

-- From wire reports


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