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EU Leaders Promise To Keep Greece In Check

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BRUSSELS — European Union leaders faced down markets Thursday with a statement of support for Greece – but offered no detailed bailout for a debt crisis that has plunged the euro into its deepest crisis since it was launched 11 years ago.

The 16 countries that use the euro promised to "take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole."

But they left out any detail about what they might do to prevent the country from defaulting on its massive debt.

Markets reacted coolly to the vague promise of help. Analysts warned that worries over a Greek default have not gone away, despite assurances from the Greek government that it will do whatever it takes to reduce a massive budget deficit.

A Greek default would be a serious blow to Europe's monetary union and undermine the whole idea of a common currency, vulnerable because it is used by countries with different fiscal policies.

EU nations are reluctant to put money on the table for Greece, believing that this would let the country off the hook for years of economic mismanagement and faked statistics – and might encourage overspending by others who they think they too will be bailed out.

The euro continued its slide, dropping around 1.5 U.S. cents over the day as hopes of immediate financial assistance faded. By early evening the euro was trading at $1.3630, near nine-month lows. It was $1.51 in late November.

But the bond market reacted well, with fears of default continuing to recede. The spread, or difference between 10-year Greek bonds and a German benchmark stood at 2.71 percentage points by late afternoon on Thursday, well below the 2.83 points seen overnight and 3.50 points last week.

Neil MacKinnon of VTB Capital said it is "inevitable, given the seriousness of the eurozone debt crisis, that the endgame is some sort of bailout. Otherwise risk of default or even breakup of the monetary union becomes a real possibility."

Germany, the EU's richest nation, said it was ready to help if necessary. Chancellor Angela Merkel said eurozone nations would "stand shoulder to shoulder with Greece." She stressed that the country has not asked for a financial bailout and is committed to making big budget cuts this year.

French President Nicolas Sarkozy didn't rule anything out, saying "we retain the possibility to re-examine this after observations." But he didn't say what else European countries could eventually offer Greece.

With the euro facing its worst crisis since its birth in 1999, European Central Bank President Jean-Claude Trichet also tried to lend his sizable credibility to shoring up market opinion about Greece, saying he will join in monitoring the government's promised budget cuts – and planning new ones.

"One can count on our permanent alertness," he said.

Leaders from the EU's 27 nations also called on the International Monetary Fund – which has extensive experience in monitoring bailouts – to give its advice on Greece's efforts, though the EU leaders have ruled out Greece taking an IMF bailout loan.

The Greek crisis is the leading edge of debt troubles that have hit governments in the developed world during the world's three years of economic turbulence, as they run up deficits by bailing out banks and spending to stimulate their economies.

Greek Prime Minister George Papandreou says his country "will not be needing help" and has not asked for any. He said Greece had convinced other countries that "we mean business."

"We believe a strong political message will be enough," he told reporters. "If we do our job properly, then there will be no need for (further) measures."

A Greek default would be a serious blow to Europe's monetary union, and fears that Athens might not be able to pay its debts have already led markets demanding higher borrowing costs for Greece. Markets are also worried that the contagion could spread to other financially wobbly countries, such as Portugal and Spain.

Spain, which is angry about being linked to Greece's problems, even said it would help out Greece.

European Union President Herman Van Rompuy, who led the talks between EU leaders said they had no fears that Greece's woes would spread to other eurozone countries with large deficits and low growth prospects.

"We only talked about Greece," he said. "We didn't mention other countries ... It concerns Greece and only Greece."

EU governments see the burden as now on Greece to prove that it can push through ambitious cuts to public spending and hike taxes as promised to reduce its budget deficit, the EU's largest, from 12.7 percent of gross domestic product last year to 8.7 percent this year.

Finance ministers will look at Greece's debt situation at a meeting Monday and Tuesday in Brussels.

Greece will report back to EU nations in March – when the EU's executive commission, finance ministers and the ECB could order tougher action that Greece may find difficult to implement.

Markets doubt Greece's credibility after it admitted falsifying statistics for years to make the 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 a much broader strike is planned for Feb. 24.

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.

Greece needs to borrow euro54 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.

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Associated Press writers Pan Pylas, Angela Charlton and Leslie Patton in Brussels contributed to this report.

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