As a two-day meeting of European Union leaders gets underway in Brussels on Thursday, analysts expect the summit to provide temporary relief for financial markets with leaders presenting a united front and insisting they will continue to support Greece, but not much more.
Although not officially on the agenda, the heads of state are widely expected to discuss Greece, where another key vote is looming, and send a clear message to financial markets that they will back the country.
Greece’s parliament has given Prime Minister George Papandreou’s government the green light to push ahead with further austerity measures needed in return for fresh EU/IMF bailout funds.
Without those funds, the country will not be able to repay its loans.
Thousands of people protested outside the parliament as thevote of confidence was won in the early hours of Wednesday morning. The parliament is due to vote on the new austerity measures by June 28 and will face further anger as the country prepares to sell of billions of euros of state assets.
Ahead of the vote of confidence on Tuesday, investors grew hopeful that a Greek default could be avoided. But markets remained jittery and stocks fell again on Wednesday.
Dragana Ignjatovic, Senior Analyst at IHS Global Insight, told CNBC.com that leaders would first and foremost try to reassure markets. “But the vote in Greece next week will be the decisive one,” she said.
“Expect a number of cheery statements on their intention to provide further loans for Greece,” ING economist Carsten Brzeski told CNBC.com.
“The summit is a media show. The markets will be looking to see whether the euro zone countries are arguing,” he said. “So they (the leaders) will present a message which says: ‘We will not abandon Greece after the summer’.”
Those statements will not sit well with German Chancellor Angela Merkel’s electorate, which is hostile to further aid for what it considers to be profligate countries with “luxury” pensions.
“It’s a tough balancing act,” Ignjatovic told CNBC.com.
“Already there is a shift to the right in countries like Italy, France and the Netherlands. But at the same time they cannot leave the EU in the lurch,” she said.
So while EU leaders may present a united front, tensions will continue to simmer away beneath the surface.
As opposition to a second bailout package for Greece grows, Open Europe, an independent Brussels-based think tank said more funds would only increase the political and economic cost of the crisis, without providing any real solutions.
“Considering Greece’s poor growth prospects and increasing debt burden, the country is likely to default within the next few years, even if it gets some breathing space through a second bailout. EU leaders should instead be planning for how such a default could be managed in as orderly a manner possible,” Open Europe said in a statement.