Germany and France struck a deal early on Thursday morning intended to rescue Greece and the euro from financial ruin. After six hours of talks in Berlin prior to a crucial summit in Brussels, Chancellor Angela Merkel and President Nicolas Sarkozy agreed a compromise on the losses that Greece's private creditors are to take, in a complex new bailout for Athens, German and French government sources said. Jean-Claude Trichet, the president of the European Central Bank, who has been Merkel's most vocal opponent in the wrangling over how to respond to the euro crisis, rushed to Berlin late on Wednesday night to take part in the negotiations. No details of the pact were revealed. But senior officials at the European commission in Brussels disclosed that a compromise was in the air to save Greece and halt contagion by levying a tax on banks in the eurozone – opposed by Berlin and proposed by Paris – as well as a long-term Greek debt rollover stretching for decades, and other measures aimed at reducing Greece's crippling debt level. It appeared that the multi-pronged formula would inexorably lead to Greece being deemed to be in sovereign default, at least temporarily. The last-minute deal, following a telephone dispute between the two leaders on Tuesday, is to be put to the heads of the European commission, council and central bank this morning before an emergency summit of the 17 leaders of single-currency countries. The Brussels summit – the 10th time in 18 months that European leaders will have tried to save the euro and Greece from collapse – is being staged amid grave pessimism that politicians will be able to bury their differences and combine to rescue the single currency. It remained to be seen if the Franco-German compromise would win the support of other leaders and would go far enough to satisfy the financial markets. Amid a febrile mood and an ominous sense that the euro was facing a make-or-break moment, an unusual hush descended on the key European capitals on Wednesday. It was as if leaders and officials had been struck dumb by the weight of the responsibility bearing down on them. The silence was broken only by José Manuel Barroso, the president of the European commission, who chastised the current crop of EU leaders, declaring that "history will judge this generation of leaders harshly" if they refuse to act decisively in the euro's darkest hour. The emergency summit brings together the 17 government leaders of the eurozone, plus the heads of the European Central Bank, the commission, and Christine Lagarde, until recently French finance minister and the new head of the International Monetary Fund. The main challenge is to forge a pact that will reduce Greece's crippling level of debt. The fundamental issue is who pays for that. On Wednesday night, the Germans insisted that Greece's private creditors pick up a large part of the tab, the main dispute with Sarkozy and Trichet. The markets are more than jittery, and Washington is nervous. President Barack Obama intervened on Tuesday by phoning Merkel. "Might this meeting finally bring an end to the farce surrounding the euro area's response to Greece?" said Daiwa Capital Markets. "No chance."
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Thursday, July 21, 2011
Germany and France struck a deal early on Thursday morning intended to rescue Greece and the euro from financial ruin. After six hours of talks in Berlin prior to a crucial summit in Brussels, Chancellor Angela Merkel and President Nicolas Sarkozy agreed a compromise on the losses that Greece's private creditors are to take, in a complex new bailout for Athens, German and French government sources said. Jean-Claude Trichet, the president of the European Central Bank, who has been Merkel's most vocal opponent in the wrangling over how to respond to the euro crisis, rushed to Berlin late on Wednesday night to take part in the negotiations. No details of the pact were revealed. But senior officials at the European commission in Brussels disclosed that a compromise was in the air to save Greece and halt contagion by levying a tax on banks in the eurozone – opposed by Berlin and proposed by Paris – as well as a long-term Greek debt rollover stretching for decades, and other measures aimed at reducing Greece's crippling debt level. It appeared that the multi-pronged formula would inexorably lead to Greece being deemed to be in sovereign default, at least temporarily. The last-minute deal, following a telephone dispute between the two leaders on Tuesday, is to be put to the heads of the European commission, council and central bank this morning before an emergency summit of the 17 leaders of single-currency countries. The Brussels summit – the 10th time in 18 months that European leaders will have tried to save the euro and Greece from collapse – is being staged amid grave pessimism that politicians will be able to bury their differences and combine to rescue the single currency. It remained to be seen if the Franco-German compromise would win the support of other leaders and would go far enough to satisfy the financial markets. Amid a febrile mood and an ominous sense that the euro was facing a make-or-break moment, an unusual hush descended on the key European capitals on Wednesday. It was as if leaders and officials had been struck dumb by the weight of the responsibility bearing down on them. The silence was broken only by José Manuel Barroso, the president of the European commission, who chastised the current crop of EU leaders, declaring that "history will judge this generation of leaders harshly" if they refuse to act decisively in the euro's darkest hour. The emergency summit brings together the 17 government leaders of the eurozone, plus the heads of the European Central Bank, the commission, and Christine Lagarde, until recently French finance minister and the new head of the International Monetary Fund. The main challenge is to forge a pact that will reduce Greece's crippling level of debt. The fundamental issue is who pays for that. On Wednesday night, the Germans insisted that Greece's private creditors pick up a large part of the tab, the main dispute with Sarkozy and Trichet. The markets are more than jittery, and Washington is nervous. President Barack Obama intervened on Tuesday by phoning Merkel. "Might this meeting finally bring an end to the farce surrounding the euro area's response to Greece?" said Daiwa Capital Markets. "No chance."
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interesting : Chancellor Angela Merkel and President Nicolas Sarkozy agreed a compromise on the losses that Greece's private creditors are to take, in a complex new bailout for Athens, German and French government sources said.
The chancellor's six-hour meeting with French President Nicolas Sarkozy, which European Central Bank President Jean-Claude Trichet also joined, managed to find a mutually acceptable formula for how to involve Greece's bondholders in the expected new rescue package, according to a senior official present at the talks.
The official didn't give details of the joint proposal, which will be presented to Thursday's meeting in Brussels of all 17 euro-zone national leaders.
The agreement between the euro zone's two most important members, with the apparent consent of its top central banker, is expected to pave the way for a Europe-wide deal at the Brussels summit.
The expected bailout package for Greece will create further financial risks for European taxpayers—especially those in Germany—who are already funding rescue loans for Greece, Ireland and Portugal.
Ms. Merkel is fighting to limit the cost of the bailouts, which many German lawmakers and voters resent—but she is also under fire for not taking decisive steps to resolve the crisis and restore investor confidence in the euro zone.
Every German government since 1991 has told the people it would never have to honor the debts of other countries. The people accepted a decade of austerity on this assumption. And now, everyone from José Manuel Barroso to the International Monetary Fund is urging her to go back on that promise. A debate on the merits of austerity and support that was once nuanced, and understanding of the need to avoid moral hazard, is now shrill and one-dimensional as the crisis has spread to Italy and Spain: Germany has to pay so that we can all avert disaster.
Yet, under every treaty ever signed by European governments, Germany is no more responsible for Italy's and Spain's debts than it is for Greece's. More importantly, Germany doesn't have resources to write a check for Italy and Spain even if it wanted to. At most, with its debt burden already over 83% of GDP, Germany has the resources to recapitalize its own banks after a Southern European meltdown.
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