Sarkozy says euro avoided 'catastrophe', confident in Greece

27th October 2011, Comments 0 comments

French President Nicolas Sarkozy said Thursday that Europe had avoided a "catastrophe" by reaching a deal to tackle its debt woes and that he was confident Greece would emerge from the crisis.

But he also said France had lowered its economic growth forecast for next year to 1.0 percent and that the government would need to make significant budget cuts.

Asked in a national television interview if he had confidence that Greece can emerge from the crisis, Sarkozy said: "Yes... we have no other choice" and said "Greece can save itself thanks to the decisions taken at the summit" of eurozone leaders.

Sarkozy nonetheless said it had been a mistake to allow Greece into the eurozone in 2001.

"It was an error because Greece entered with false (economic) figures... it was not ready," he said.

Sarkozy was speaking after European leaders clinched a deal that will address the debt mountain in Greece, cutting it by 100 billion euros in an agreement between the eurozone and private creditor banks to take a 50 percent loss on their holdings.

"We had to face up to all this. If the euro had exploded last night, all of Europe would have exploded," Sarkozy said. "If Greece had defaulted, there would have been a domino effect carrying everyone away."

"If there had not been an agreement last night, it was not just Europe that would have sunk into catastrophe, it was the whole world," he said.

"We took important decisions yesterday that avoided catastrophe."

In a sign of how the economic crisis has hit France, the eurozone's second-largest economy, Sarkozy said the government has decreased its 2012 economic growth forecast from 1.75 percent to 1.0 percent.

He said the French government would have to find six to eight billion euros in supplementary budget savings and that decisions on this would be taken "within 10 days."

He said he would announce budgetary measures after the November 3-4 summit of G20 countries in the southern French city of Cannes.

He provided no details but said he would "give preference to measures that will reinforce the competitiveness" of the French economy.

"The key is growth and jobs," he said.

He also excluded that France would turn to an overall increase of its value-added tax to make up for budget shortfalls.

"In no case will there be a generalised increase in the VAT. This is for a simple reason: this would weigh on the purchasing power of the French people, on French consumption," he said, adding that this would be "unjust".

Sarkozy also addressed concerns over Europe turning to China for capital in saving the euro, saying there was no reason to refuse Chinese help.

"If the Chinese, who have 60 percent of global reserves, decide to invest in the euro instead of the dollar, why refuse?" he said, adding that "our independence will in no way be put into question by this."

"Why would we not accept that the Chinese have confidence in the eurozone and deposit a part of their surpluses in our funds or in our banks? Would you prefer that they deposit in the United States?" he said.

Sarkozy had earlier held a telephone call with Chinese counterpart Hu Jintao just as the chief of the European rescue fund was flying to Beijing for key talks on a bid to raise the fund into a trillion-euro warchest.

© 2011 AFP

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