Sarkozy gives month-end deadline for eurozone response

French President Nicolas Sarkozy said on Sunday that Europe must “have resolved its problems” by the time G20 leaders meet in the French Riviera resort of Cannes at the beginning of November.

He was speaking at a joint press conference with German Chancellor Angela Merkel in Berlin after talks lasting more than an hour on Europe’s debt crisis that has brought Greece to the brink of bankruptcy.

Sarkozy vowed a “global, lasting and quick response” to the crisis before the end of the month, adding this had been the “main result of this Franco-German meeting”.

Paris and Berlin agree on a recapitalisation of banks, Merkel said, adding they were “decided on doing what is necessary to recapitalise [the] banks in order to assure the granting of credit to the economy”.

Sarkozy added that “agreement was complete”, following reports that Europe’s two biggest economies were at odds over how to proceed on shoring up banks overexposed to risky sovereign debt.

“An economy is not prosperous without stable and reliable banks,” he said.

Sarkozy also said that Paris and Berlin would propose “important changes” to European treaties, adding he favoured greater integration of the eurozone.

For her part, Merkel said the “goal is to have closer and more binding cooperation of eurozone countries” to avoid overspending.

Leaders want to prevent any new, bigger reduction of Greece’s debt triggering a banking crisis reminiscent of 2008 which set off a global recession.

In July, leaders agreed a 21% “haircut”, or reduction in the value of the debt banks hold, in exchange for lowering Athens’ debilitating repayments in the next few years.

Berlin and Paris reportedly differed over how to go about recapitalising Europe’s banks, which the IMF thinks will need between €100-billion and €200-billion to cover potential losses.

No details
Germany, Europe’s strongest economy and effective eurozone paymaster, wants under-pressure banks to first turn to investors for funds before appealing for national or European cash.

France, fearful of losing its top-notch AAA credit rating, would rather dip into European funds than its own coffers.

Sarkozy will host the Cannes summit and is keen to deliver a big success that might bolster his flagging chances of winning re-election in a presidential vote next year.

But even if the two leaders can agree on a way forward, the experience of the past two years has shown that they could struggle to get the other 15 countries in the eurozone on board in a timely fashion.

Pressed by reporters both leaders refused to discuss details of their plan. Sarkozy said he and Merkel were in “total agreement” on the recapitalisation of European banks even though officials in Paris and Berlin have made clear in recent days that the countries are far apart.

The two eurozone heavyweights have come under pressure worldwide to resolve a crisis which is roiling markets.

US President Barack Obama on Thursday urged Europe to “act fast”, calling the common currency bloc’s crisis the largest obstacle to a recovery in the US.

World Bank President Robert Zoellick told German magazine Wirtschaftswoche magazine that there was a “total lack” of vision in Europe and Germany in particular needed to show more leadership.

Following the news conference, the leaders of the eurozone’s two biggest economies were due to hold a working dinner at the Chancellery.—Reuters, AFP

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