Brussels meeting
October 23, 2011
European Union finance ministers were still to reach agreement on the details of a solution to the European debt crisis as Chancellor Angela Merkel met with French Prime Minister Nicolas Sarkozy on Saturday evening.
The degree of liability that creditors would assume in the event of a Greek default had yet to be decided upon.
Late on Saturday evening it remained unclear if Germany and France would be able to agree on a common course of action. Merkel said that "proper preparation of very complicated issues" was necessary, with hopes of a final outcome at the second part of the summit on Sunday.
France originally wanted to integrate the European Central Bank with the raising of "leverage" of the European Financial Stability Fund to 2 trillion euros. The German delegation and the central bank itself rejected this. The size of the fund is determined by the estimated amount that would be required for any future bailout for Italy and Spain.
Exact details of Merkel and Sarkozy's meeting, which were set to continue at breakfast on Sunday, were not revealed. Head of the eurozone group of finance ministers, Jean-Claude Juncker and the head of the European Central Bank Jean-Claude Trichet, were also reported to be involved in the discussions.
Banks to build funds
Controversy remains about the extent to which banks will need new capital to survive the credit waiver. A figure of 100 billion euro has been estimated, although some believe this is too low.
A waiving of debt would need to be, as far as possible, a voluntary one. That way, credit default swaps - a form of insurance against investment losses - would not be payable.
Banks would be expected to first try to procure their own capital from owners. If that were not possible, Luxembourg Prime Minister Jean-Claude Junker indicated, governments could even partially nationalize the banks in order to contribute the required funds. Nationalization measures could, under such circumstances, even be mandatory.
There were also calls in Brussels for creditors to take a hit of as much as 60 percent so that Greece can once again finance itself through the markets by the end of the decade.
Gloomy Greek figures
The financial requirements of Greece are estimated by the so-called "troika" of the European Union, the European Central Bank and the International Monetary Fund, to be at about 250 billion euros. In spite of gloomy economic figures, the finance ministers of the eurozone did agree to release the next tranche of loans to Greece, worth 8 billion euros.
Greek Finance Minister Evanglos Venizlos responded with relief, being able to pay the wages of state employees, as well as debts to creditors, at least until Christmas.
He added that there were issues to be addressed beyond his own country's borders. "Greece is not the central problem," said Venizelos. "Now the point is to take more general and more constructive decisions for the eurozone as a whole."
The assessment was regarded by some observers as strange, given that Greece - with a debt burden of more than 180 percent of gross domestic product - is by far the most indebted country in Europe.
British Finance Minister George Osborne said that the crisis encompassing the 17-nation eurozone had become a threat to the whole of Europe - including Britain which retains the pound as its currency.
"We've had enough of short-term measures, sticking plasters that just get us through the next few weeks," Osborne said on Saturday morning. "We need a lasting solution that will help all of Europe's economies grow."
Time-consuming negotiations
A meeting of foreign ministers from across the EU also took place on Saturday. Discussions included possible changes to the Stability and Growth Pact as a consequence of the eurozone crisis.
German Foreign Minister Guido Westerwelle described the discussions that would need to take place as "annoying and time consuming, but necessary." Westerwelle maintained that it was clear that current deficit procedures were not sufficient.
Germany would like to see a strengthening of Article 126 of the Lisbon Treaty, which stipulates the procedures used in relation to indebted countries. This would give the EU a right to intervene directly in state finances.
Such a move has been opposed by Austria and Luxembourg, although other states have expressed support. There are plans for a convention on any changes to the treaty to take place by summer next year.
Need to regain popular trust
The procedure was necessary for the political leadership of Europe to regain the trust of citizens, according to Westerwelle. "It is not only about confidence in the financial markets. The trust of the people in Europe is just as important."
The summit, one of the most important that Brussels has ever hosted, begins on Sunday morning with a seven-hour meeting of leaders from all 27 EU members states. That will be followed by an afternoon meeting of leaders from the 17 eurozone countries. No decision is expected to be reached before midnight.
"If necessary, we can keep on negotiating until the next summit on Wednesday," on EU diplomat was heard to quip, with a good degree of gallows humor.
Author: Bernd Riegert / rc
Editor: Andrew Bowen