Angela Merkel and Nicolas Sarkozy have drawn up a package to counter debt crisis -- but refuse to reveal details.
The leaders of France and Germany have announced that they are ready to recapitalise Europe’s troubled banks and have reached an agreement on a “long-lasting, complete package” to counter the bloc’s debt crisis.
But German chancellor Angela Merkel and French president Nicolas Sarkozy refused to go into detail about the plans, saying they had to think of the markets and iron out “technical issues” before consulting the other 25 leaders in the European Union.
The announcement came hours after the governments of France, Belgium and Luxembourg said they had approved a plan for the future of the embattled Franco-Belgian bank, Dexia.
“We are determined to do whatever necessary to secure the recapitalisation of our banks,” Merkel said at a joint news conference with Sarkozy at the chancellery in Berlin on Sunday night. “A sound credit supply is the basis of sound economic development.”
Both leaders were tight-lipped on whether they had decided that the €440-billion (£380-billion) bailout fund, the European financial stability facility, could be used to recapitalise banks—a position known to be favoured by the French - or whether it could be used only as a last-ditch resort if a member state could not cope with shoring up its banks’ capital on its own. The latter is known to be Merkel’s preference, but on Monday the chancellor would only say: “Germany and France want the same criteria to be applied and criteria that are accepted by all sides.”
Merkel said: “We are not going into details today,” adding that the duo would present a “complete package” for stabilising the eurozone at the end of the month in time for the G20 summit in Cannes on November 3 and 4. “This summit has to be a success for the sake of the global economy,” she said.
Sarkozy said he was of the “unshakeable belief” that all 17 eurozone countries would ratify the controversial Bill to expand the European financial stability facility’s capabilities soon. He, too, would not elaborate on his agreement with Merkel, saying only that there were “technical issues” to resolve before it was made public and that releasing information prematurely could affect the markets.
Germany and France, which together represent about half of the 17-nation currency zone’s economic output, regularly hold talks before European Union (EU) summits to chart out joint positions.
Although Merkel and Sarkozy refused to reveal exactly what lies ahead, German media were reporting that eurozone officials were planning for a scenario in which investors would take a haircut of up to 60% on Greek bonds.
Merkel had been put under extra pressure to reach a speedy solution after coming under attack from the United States for her damaging dawdling. The World Bank president, Robert Zoellick, told a German magazine last week that there was a “total lack” of vision in Europe and Germany in particular needed to show more leadership.
The German chancellor knows the stakes are high and time is short. Her finance minister, Wolfgang Schauble, told the Sunday paper Frankfurter Allgemeine Sonntagszeitung that “there is a high risk that the crisis will grow more acute and spread further”. One countermeasure that therefore has to be in place, he was quoted as saying, must be “to make sure that the banks have sufficient capital”.
The International Monetary Fund said banks across the continent might need up to €200-billion ($267-billion) in new capital. The EU disputes the IMF’s estimate, but has been warning that lending between banks and from banks to businesses is threatening to freeze up.
The implosion of the Franco-Belgian lender Dexia following its sizable exposure to Greek and other eurozone sovereign debt, meanwhile, added a sense of urgency to the talks.
After Dexia’s shares plunged last week amid fears it could go bankrupt, the French and Belgian governments stepped in and guaranteed its financing and deposits.
Finding a solution is particularly urgent for Belgium because Moody’s Investors Service placed the country’s AA1 rating on review for a possible downgrade owing in part to the expected expense of guaranteeing that Dexia’s depositors will lose no money.—