Merkel: Germany, France broadly agree on debt deal
Friday, October 21, 2011
BERLIN (AP) — Chancellor Angela Merkel insisted Friday that Germany and France agree over the main points of a plan to deal with Europe’s crippling debt crisis, a day after the nations’ leaders said a new strategy won’t emerge in time for a Sunday summit.
Markets appear to be giving Europe the benefit of the doubt that they will eventually be able to agree to a comprehensive package of measures in time for a second summit, which France and Germany say will be held by Wednesday at the latest. Europe’s main stock markets all opened higher Friday.
Sunday’s summit was supposed to deliver a comprehensive plan to finally get a grip on the currency union’s debt troubles. Leaders had been expected to detail new financing for debt-ridden Greece, produce plans to make Europe’s banks fit to sustain worsening market turbulence and further empower the eurozone bailout fund.
Though Merkel insisted in discussions with lawmakers Friday that there are no major differences of opinion between herself and French President Nicolas Sarkozy, Europe’s two biggest economies appeared to be at loggerheads over how to make best use of the bailout fund, the so-called European Financial Stability Facility, or EFSF.
A spokesman for Merkel’s conservative Christian Democrats said the chancellor refused to be drawn on reports of the split between her and Sarkozy in talks with lawmakers from her party.
“She would not say anything other than that they were in agreement,” Dominik Geissler told reporters in Berlin.
Yet, while France proposes turning the EFSF into a bank that would have access to unlimited credit from the European Central Bank, Germany has refused to sanction such a move, arguing it would compromise the ECB’s impartiality.
“Considering the importance of the discussions and there potential impact upon the European economy, global capital markets and the future of the EU itself a delay of a few days is neither here nor there in the overall scheme of things,” said Gary Jenkins, an analyst at Evolution Securities. “However the suggestions that they are still far apart on how to make best use of the EFSF is of some concern.”
What to do about the (euro) 440 billion ($607 billion) EFSF doesn’t seem to be the only point of contention.
Germany and several other rich countries have been pushing for banks and other private investors to take steeper losses on their Greek bondholdings, before the eurozone can sign off on a second multibillion euro rescue package for the struggling country.
France and the European Central Bank had so far opposed forcing banks to write off more Greek debt, fearing that would destabilize the banking sector and worsen market turmoil.
However, the French and German statements Thursday indicated that the two countries may be edging towards a solution. They have asked Greece to immediately start negotiations with the private sector to reach a deal “that would improve (Greece’s) debt sustainability.”
But lawmakers from Merkel’s junior coalition partner, the Free Democrats, said the chancellor had indicated that Spain and Italy in particular were concerned about such a move, which could further undermine confidence in their own ability and willingness to repay their debts if markets start to think that Greece is not a one-off case.
The main worry in the markets is that the debt crisis, which has already seen Greece, Ireland and Portugal bailed out, could envelop the much bigger economies of Spain and Italy.
The eurozone’s third and fourth largest economies are currently being supported by the European Central Bank’s bond-buying program, which has helped prevent their borrowing costs in the markets from rising up to unsustainable levels.
The ECB has been a reluctant buyer of their bonds in the markets; the EFSF is soon set to take on that role.
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