France, Germany scramble to end rifts on eve of debt summit

20th October 2011, Comments 0 comments

Brussels urged Europe's leaders to overcome differences Thursday as France and Germany scrambled to agree how to battle the eurozone debt crisis in 11th-hour talks held on the eve of crunch EU summit meetings.

Finance ministers from the 17-nation eurozone kick off Friday a string of meetings culminating in a Sunday summit, with a first decision expected on whether to agree an eight-billion-euro loan to Greece, where chaos hit the streets in a second day of dire protests against austerity.

Hopes are that the three-day EU marathon, involving finance and foreign ministers as well as heads of state and government, will agree to beef up Europe's financial rescue facility and recapitalise banks under threat from the burgeoning two-year euro-crisis.

Nations sharing the euro are expected to approve the cash for Greece as it implements drastic belt-tightening infuriating unions, but a final decision to help reduce its 350-billion-euro debt mountain will rest with the International Monetary Fund early next month.

Hopes of a wide-ranging agreement at the make-or-break talks to stem the euro crisis were dampened on their eve by 11th-hour wrangling between the European Union "big two," France and Germany.

Missing the birth of his baby daughter, President Nicolas Sarkozy rushed to Frankfurt late Wednesday to meet German Chancellor Angela Merkel as the two struggled to agree a roadmap to curtail euro woes threatening Europe and the world.

In a plea for consensus, European Commission president Jose Manuel Barroso said a "very positive outcome was possible on Sunday if there is a sense of compromise by the participants."

"Europe needs a sense of compromise," he added. "I'm confident you'll do it," he said of the key figures.

In Frankfurt, German Finance Minister Wolfgang Schauble said Thursday that "France and Germany have a completely agreed position."

But he warned agreement was needed too from the other 15 nations sharing the single currency, as well as the entire 27-nation European Union.

The French-German discussions are "not a European solution," Schaeuble told reporters.

Speaking at a Brussels conference, Barroso said it was vital to reach agreement on strengthening Europe's rescue fund, the European Financial Stability Facility (EFSF), the bloc's primary weapon to stem the crisis.

Barroso said the most important thing was "the need to reinforce the firewall."

The EFSF currently has 440 billion euros to rescue nations in trouble but would need much more if it had to throw a lifeline to other strugglers such as Italy or Spain, Europe's third and fourth largest economies.

Paris and Berlin have been split over how to boost the firepower of the EFSF, with France pushing for it to morph into a bank, but Berlin opposed on the grounds this would entail change to the EU's founding treaty -- potentially a long and painful process.

They also differ on plans to boost the fund's capacity to between "one and two trillion euros", an EU diplomat said.

"Discussions are being held about raising the EFSF's capacity for intervention," without increasing the guarantees put up by eurozone governments, the source said.

The Financial Times Deutschland reported Wednesday that Schaeuble is mulling a 1.0-trillion-euro EFSF.

It reported him as saying the fund could be leveraged to offer partial insurance of 20-30 percent should member countries not be able to repay their sovereign debt.

Also on the agenda of the talks is how to strengthen banks, notably in France, holding debt from struggling nations.

Plugging the hole is a job the IMF reckons could cost 100-200 billion euros, and that ratings agencies suggest could result in a downgrade for France.

© 2011 AFP

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