European Union leaders pledged to stabilize the euro-areaeconomy, vowing to stave off a Greek default as long as PrimeMinister George Papandreou pushes through a package of budget cutsnext week.

“This is not only a green light but also a positive sign for thefuture of Greece,” Papandreou told reporters after the firstsession of an EU summit in Brussels late yesterday.

Greece's next hurdle is to shepherd 78 billion euros ($111billion) of austerity measures through parliament, afteryesterday's endorsement of the program by experts from the EuropeanCommission, European Central Bank and International MonetaryFund.

Europe's latest attempt to stem the debt crisis came after bondsof debt-strapped euro nations slumped and officials in the U.S. andChina warned that the euro area's failure to restore confidencethreatened the world economy.

The summit ends today with leaders facing a potentiallast-minute hitch over the final approval of Italy's Mario Draghias president of the European Central Bank. French President NicolasSarkozy is putting pressure on another Italian on the ECB board,Lorenzo Bini Smaghi, to step down two years before his term ends tomake way for a French replacement.

Yesterday's discussions were dominated by Greece, drawing on 110billion euros of loans pledged last year. The leaders paired theirshow of solidarity with pressure on the Greek opposition party tofall in line with the savings program.

Greek Opposition
Opposition leader AntonisSamaras refused to commit in meetings with fellow Europeanconservatives in Brussels. While backing budget cuts, he lashed outat the “current policy mix” for too much reliance on taxincreases.

“Everyone has to unite,” German Chancellor Angela Merkel said.She made an “appeal to the opposition to live up to its historicresponsibility. It worked in Portugal, it worked in Ireland andthat's why we made the case for it working in Greece.”

The euro headed for a third straight weekly drop against thedollar amid concern at the outcome of the Greek crisis. It waslittle changed from late yesterday in New York at $1.4262 as of1:10 p.m. in Tokyo.

Papandreou offered an assurance that he would deliver the budgetcuts demanded in exchange for the 12 billion-euro installment ofemergency loans due in July and a new rescue package, a Greekgovernment official said.

Papandreou's Pledge
Papandreou made thepledge at an earlier meeting yesterday that included Merkel, EUPresident Herman Van Rompuy, French President Nicolas Sarkozy andJean-Claude Trichet, whose term as central bank president ends inOctober.

Speaking of “difficult and worrisome days,” Van Rompuy saidGreek belt-tightening is “absolutely necessary to restoreconfidence and over time foster economic growth.”

Already at a European record of 142.8 percent of gross domesticproduct, Greek debt is set to rise to 157.7 percent this year and166.1 percent next year, the EU predicts. The effort to cut abudget deficit that is about 10 percent of GDP has helped deepen athird year of recession.

In Athens, Finance Minister Evangelos Venizelos, in office sincea June 17 cabinet revamp, announced savings steps including a 5percent tax on lawmakers' incomes, a levy on self- employedprofessionals and a reduction in the tax-free income allowance.

June 30 Vote
Lawmakers in Athens will voteon the package on June 30, in time for a July 3 meeting of Europeanfinance ministers to agree to pay the next installment.

Greece needs to cover about 4 billion euros of bills maturingbetween July 15 and July 22 and faces about 3 billion euros ofcoupon payments in the month, according to Bloomberg calculations.A bigger test comes on Aug. 20 when it must redeem 6.6 billioneuros of bonds.

Papandreou said a European commitment to aid Greece will make iteasier for him to sell the Greek people on austerity measures thathave provoked strikes and riots.

“If there is a strong commitment from the European Union therewill be a strong commitment from Greece,” Papandreou said.

The EU sweetened the offer by pledging to increase itscontribution to Greek infrastructure projects and provide more“technical assistance” to enable the Greek government and companiesto tap European subsidies.

'Existing' Funds
Europe will “look at howwe can use existing European structural funds in Greece so thatthey have an immediate impact on growth and jobs,” EuropeanCommission President Jose Barroso said.

Leaders of Europe's six AAA rated countries have said the keyingredient of a second package must be a pledge by banks, insurancecompanies and asset managers to maintain their holdings of Greekbonds.

An EU statement spoke of the need for “informal and voluntaryrollovers of existing Greek debt at maturity,” avoiding a coerciveexchange that would lead credit-rating companies to declare Greecein default.

To make the rollover voluntary, talks with Greek bondholdersmust be held on a country-by-country basis, not organized fromBrussels, an EU official told reporters yesterday. The EU wantsnational central banks and finance ministries to speak to financialinstitutions in their countries, the official said.

“We don't see any way that investors are going to come out beingpaid on time and in full,” said Sean Egan, president of Egan-JonesRatings Co. in Haverford, Pennsylvania.

Bloomberg News

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