Germany and France have reached a common position on a second bailout of Greece in their effort to prevent the country’s debt crisis from spreading through Europe, officials said yesterday.
The accord came after seven hours of talks late into Wednesday night between German Chancellor Angela Merkel and French President Nicolas Sarkozy in Berlin, sources in both governments said.
Details of the common position were not revealed. European Central Bank President Jean-Claude Trichet joined Merkel and Sarkozy for part of their talks.
Photo: AFP
The accord between the two most powerful states in the eurozone was then to be presented to a crisis summit yesterday in Brussels of all 17 leaders of the bloc, who are trying to prevent fears of a Greek debt default from poisoning access to the bond market for bigger states such as Italy and Spain.
The new bailout would supplement a 110 billion euro (US$156 billion) rescue plan for Greece launched in May last year. It is expected to include fresh emergency loans to Athens from eurozone governments and the IMF, and possibly a range of other measures.
Worried about the impact on financial markets and wary of angering their own taxpayers, eurozone governments have struggled for several weeks to agree on major aspects of the plan, especially a contribution by private sector investors.
The euro rose moderately against the US dollar in response to the Franco-German announcement, but markets may remain nervous until the details are revealed. Providing fresh money to Greece and arranging for commercial banks to participate could face legal and technical obstacles.
European Commission President Jose Manuel Barroso warned on Wednesday the global economy would suffer if Europe could not summon the political will to act decisively on Greece.
“Nobody should be under any illusion: The situation is very serious. It requires a response, otherwise the negative consequences will be felt in all corners of Europe and beyond,” Barroso told a news conference.
British Finance Minister George Osborne, in an interview with the Financial Times published yesterday, urged eurozone leaders to “get a grip” on the debt crisis when they meet and said failure could produce an economic crisis as serious as the recession which followed the global credit crash of 2008.
Barroso said a solution to Greece’s problems must include steps to ensure the sustainability of Greek public finances, private sector involvement in funding for Athens, more flexible use of the eurozone’s bailout fund, repair of the region’s banking system, and liquidity to keep the Greek economy going.
It was not clear how many of these steps were included in the Franco-German accord.
Four competing proposals have been circulating for private sector involvement: a rollover of Greek government bonds as they mature, a swap of bonds for debt with longer maturities, a buy-back of Greek debt at a discount to its face value and a tax on European banks.
Germany and France have been at odds on these proposals, with Berlin promoting a bond swap and France suggesting a rollover or a tax. The ECB has complicated the argument by opposing any step that might cause credit rating agencies to declare Greek debt in default; this would probably be the case for all proposals except the tax, which the banks hate.
German newspaper Bild, citing diplomatic sources, reported that top European commercial bankers including Deutsche Bank chief executive Josef Ackermann and the head of a large French private bank would attend yesterday’s summit to discuss the private sector contribution.
The IMF, whose new head Christine Lagarde will also attend, has told eurozone leaders they should put more money into their bailout fund, the 440 billion euro European Financial Stability Facility, and let it buy government bonds of weak states on the secondary market. Investors also hope it will be permitted to extend precautionary credit lines to countries at risk.
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