France, Germany want July euro accord rescue deal in place

7th August 2011, Comments 0 comments

France and Germany said Sunday they wanted full implementation of measures agreed at a eurozone summit in July in order to safeguard the single currency as markets brace for fresh turmoil this week.

"President (Nicolas) Sarkozy and Chancellor (Angela) Merkel reiterate their commitment to fully implement the decisions taken by the heads of state and government of the euro area and the EU institutions on July 21," a joint statement said.

"In particular, they stress the importance that parliamentary approval will be obtained swiftly by the end of September in their two countries," it added.

The statement comes as officials around the world scramble to head off fresh market turmoil on Monday as investors take on board Friday's unprecedented US ratings downgrade by Standard and Poor's on the grounds US politicians have failed to properly tackle the US debt problem.

The European debt crisis meanwhile threatens to snare Italy and Spain, after forcing bailouts for Greece, Ireland and Portugal.

The French and German leaders pointedly welcomed Sunday the "recent measures announced by Italy and Spain with regard to faster fiscal consolidation and improved competitiveness.

"Especially the Italian authorities' goal to achieve a balanced budget a year earlier than previously envisaged is of fundamental importance.

"They stress that complete and speedy implementation of the announced measures is key to restore market confidence," the statement said.

On Friday, EU economic affairs commissioner Olli Rehn said that officials at the EU Commission, the European Central Bank and the European Financial Stability Facility (EFSF) were "working night and day to put flesh on the bones" of an agreement struck at the July 21 summit.

The summit agreed to flesh out a crisis rescue pot -- the 440-billion-euro ($625 billion) EFSF -- so it could step in to help troubled banks and buy back government bonds on markets, a first step to building something akin to a European version of the International Monetary Fund.

"Such a comprehensive, detailed and technically complex agreement requires time to implement," Rehn said. "It would have been fantastic if the agreement had been fully operational on 22 July... But this was of course impossible."

In their statement Sunday, France and Germany said the measures were taken to "in order to avoid (debt) contagion."

They said they were confident that "ECB analysis will provide the appropriate basis for secondary market interventions (to buy government bonds) as it will help determine the case when financial stability of the eurozone as a whole is at risk."

The ECB has been reluctant to buy government bonds directly from the markets even though this should ease the pressure on weaker eurozone countries seeking to raise fresh funds.

Some analysts have blamed ECB chief Jean-Claude Trichet's failure to clearly back Spanish and Italian government bonds last week for contributing to the massive turmoil on the stock and debt markets.

© 2011 AFP

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