Merkel, Sarkozy seek eurozone breakthrough

20th July 2011, Comments 0 comments

European powerhouse Germany talked up Wednesday the chances of a breakthrough in the eurozone debt crisis after a raft of dire warnings and jitters on financial markets a day ahead of a crunch summit.

"Germany and France ... must agree. If this does not happen then we can't make progress in Europe," Chancellor Angela Merkel's spokesman said ahead of talks in Berlin with French President Nicolas Sarkozy from 1530 GMT.

"There is confidence on both sides that such a common line can be worked out this evening," Steffen Seibert said, adding Merkel was "very confident" Thursday's Brussels summit would produce a "good result."

The comments by Merkel, who has come under fire from all sides for her handling of the eurozone debt crisis, marked a change of tone after she played down on Tuesday any expectations of a "spectacular" summit outcome.

Berlin has been at odds with Paris and the European Central Bank over the terms of a second bailout for Greece, a year after Athens received a first 110-billion-euro ($154-billion) package that has proved insufficient.

Nervous financial markets are awaiting the outcome of the summit with bated breath after several rocky days, with debt crisis contagion threatening to engulf Italy and Spain.

"Nobody should be under any illusion -- The situation is very serious," European Commission President Jose Manuel Barroso warned.

"It requires a response. Otherwise the negative consequences will be felt in all corners of Europe and beyond."

In Paris, French government spokeswoman and Budget Minister Valerie Pecresse said: "We have one priority, an urgent one, which is to find a lasting solution to the Greek question."

The embattled Greek government said the meeting "will determine the future of Greece and of Europe."

The International Monetary Fund, a contributor to bailouts of Greece, Portugal and Ireland, urged eurozone leaders to take urgent action, warning that any delays "could be costly for the euro area and the global economy."

IMF chief Christine Lagarde, the former French finance minister, will attend the Brussels summit in her first international appearance as the global lender's managing director since she took office on July 5.

US President Barack Obama discussed the crisis in a telephone conversation with Merkel on Tuesday.

"They agreed that dealing effectively with this crisis is important for sustaining the economic recovery in Europe as well as for the global economy," the White House said in a statement.

Berlin insists that private creditors, not just taxpayers, shoulder some of the costs of a new bailout, even if it means triggering some sort of Greek default, an outcome vehemently opposed by the ECB, France and others.

According to the Financial Times Deutschland (FTD) daily, Merkel and Sarkozy failed to overcome their differences in a phone call on Tuesday.

The German leader was sceptical about French proposals to get the financial sector to contribute by way of a banking tax and a wider role for the European Financial Stability Facility (EFSF), the FTD said.

One option being discussed would be for the EFSF to lend Greece money with which it can buy back its own bonds, thereby slashing it debt levels.

On Wednesday, a senior panel advising the German government said it supported such an idea, along with a substantial "haircut" on Greek debt. Merkel's spokesman said only she had "taken note."

The ECB's chief economist Juergen Stark said in a Boersen Zeitung interview to appear Thursday that such a scheme might work but that markets would likely still feel Athens had defaulted.

Carsten Brzeski, senior economist at ING Belgium, said the "biggest challenge" for eurozone leaders is to "come up with a plan to prevent further contagion."

© 2011 AFP

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