German Chancellor Angela Merkel said European leaders will do “everything necessary” to ensure that banks have adequate capital, joining French President Nicolas Sarkozy to persuade investors they can stamp out the debt crisis roiling global markets.
At a joint press conference in Berlin, Sarkozy set a deadline of the Nov. 3 Group of 20 summit to deliver a response that addresses the immediate crisis in Greece and what he called the structural defects in the 17-nation euro area. No details were provided today.
“By the end of the month, we will have responded to the crisis issue and to the vision issue,” Sarkozy said. “We’re determined to do everything necessary to ensure the recapitalization of our banks,” Merkel said.
While the heads of Europe’s two biggest economies reiterated their intention to keep Greece in the euro, they left it to international auditors known as the “troika” to guide the next steps, with Sarkozy avoiding the line he used nine days ago that “we can’t let Greece fail.” The urgency to act was underscored as the board of French-Belgian Dexia SA (DEXB) met today to begin dismantling the lender, the first victim of the debt crisis at the core of Europe.
European leaders are coming under increasing pressure from international counterparts to end the debt contagion that President Barack Obama said last month was “scaring the world.” He dispatched Treasury Secretary Timothy F. Geithner to a finance ministers’ meeting in Poland last month.
The two leaders unveiled no new agreement on what role should be played by the European bailout fund, the European Financial Stability Facility, amid reports that they differ on the scope of the mechanism. Welt am Sonntag newspaper had reported that Merkel and Sarkozy were nearing a compromise.
“We’re not going into details today -- we’re looking to introduce an entire package,” Merkel said.
European leaders are bracing for the consequences of a Greek default. German Finance Minister Wolfgang Schaeuble told Frankfurter Allgemeine Sonntagszeitung that euro-area governments may have come up short on the scale of Greek debt writedowns when they reached an agreement required in July. He cited a “great risk” that the crisis could spread further.
Merkel said a report from a team of inspectors from the International Monetary Fund, the European Union and the European Central Bank later this month will help provide a “durable solution” for Greece to remain within the euro zone.
“On Greece, we are waiting of the troika report,” Sarkozy said. “Here, too, we are on the same line: we will take the appropriate decisions.”
“The decision for a single currency was a path-breaking decision and therefore we’ll defend it with all possible strength,” Merkel said alongside Sarkozy. Sarkozy repeated several times that the two leaders agreed “on everything.”
Investors are demanding a premium of 21.5 percentage points to hold Greek 10-year bonds over benchmark German bunds of similar maturity. The euro has declined 6 percent against the dollar since the beginning of September as investors assessed the risk of a European financial crisis. It traded at 1.3378, down from a May 2 high of 1.4830, as of Oct. 7.
Paris- and Brussels-based Dexia became the first victim of the debt crisis, which has caused the evaporation of short-term funding to what used to be the world’s largest municipal lender. The French, Belgian and Luxembourg governments said today they backed management’s plan paving the way for dismantlement.
Any accord could still be foiled as the Slovak government struggles to overcome differences to approve enhancements to the EFSF. Slovakia’s junior government coalition member, the Freedom and Solidarity party, won’t back the overhaul of the EFSF after Prime Minister Iveta Radicova rejected its conditions for approval, according to a lawmaker from the party, Jozef Kollar.
The party insists its three coalition partners agree to two conditions before it supports the changes in a parliamentary vote scheduled for Oct. 11, Kollar said in a debate on state Slovak Radio yesterday.
Slovakia and Malta are the only countries that haven’t yet ratified the key element in the European Union’s plan to prevent the region’s debt crisis from spreading. The Slovak row risks sinking the EU plan, which needs the unanimous consent of all 17 euro members to come into force.
To contact the editor responsible for this story: James Hertling at email@example.com