Merkel bids to quash Greece default talk

Πηγή: FT
By Quentin Peel, Richard Milne, Ralph Atkins
September 13, 2011

Angela Merkel, Germany’s chancellor, sought on Tuesday to quash speculation that a Greek default was imminent, insisting that no such event could happen before 2013 even as markets continued to gyrate wildly over eurozone fears.

Mixed messages from members of Germany’s ruling centre-right coalition have fed recent market turmoil. But the chancellor slapped down her political partners for speculating about Greek insolvency, or even an exit by Athens from the euro.

“Everyone should weigh their words very carefully. What we do not need is alarm in financial markets,” she said. “There is already enough uncertainty.”

Her intervention came in a radio interview, 24 hours after Philipp Rösler, her vice-chancellor and economy minister, called for the “orderly insolvency” of Greece to be put on the political agenda once “the necessary instruments are available”. Ms Merkel said such a situation would not arise before 2013, when the eurozone’s permanent rescue fund, the European Stability Mechanism, is due to come into operation.

The German chancellor’s remarks came as US President Barack Obama warned eurozone leaders in an interview with Spanish journalists that they needed to show markets they were taking responsibility for the debt crisis.

Ms Merkel and Nicolas Sarkozy, the French president, are holding a conference call on Wednesday with George Papandreou, the Greek prime minister.

The purpose would be to assure Mr Papandreou of their support for his “almost superhuman efforts” in reforming the Greek economy and curbing its borrowing, according to one senior official. At the same time they would urge him to deliver measurable progress on Greece’s promises in exchange for the next tranche of its rescue package from the European Union and International Monetary Fund, the official added.

Ms Merkel insisted in a radio interview in Berlin that Germany and its eurozone partners were working “with all the means at our disposal” to avoid a Greek default, because such an event could cause contagion throughout the currency area.

Amid the continued uncertainty, markets experienced extreme volatility, with French banks the focus of attention. Société Générale fell 8 per cent in morning trading before rebounding to close up 15 per cent.

“It is very difficult for people to trade in these markets. The market sells off and rallies on spurious rumours,” said Gary Jenkins, head of fixed income at Evolution Securities.

Sergio Marchionne, the chief executive of Fiat and Chrysler, the Italian and US carmakers, underlined the concerns of business leaders, saying at the Frankfurt motor show: “I think there is a possibility, if the wrong steps are taken, that the system goes off the rails. The problems must be confronted in a serious way.

“It is not pleasant right now. We are not totally calm about this instability and the way in which the European crisis is being managed.”

Jens Weidmann, president of the Bundesbank, also called for bolder action from EU governments. In a speech in Cologne, he warned that a decision “would have to be taken soon” on either a “big jump” towards political union or a return to a monetary union based strictly on countries taking responsibility for their own finances.

The middle way of pooling responsibility but retaining national fiscal policies “threatens to collapse under its own inconsistency,” he said.

Euro reaches eleventh hour as Angela Merkel and Nicolas Sarkozy hold crisis talks

Πηγή: The Telegraph

By Louise Armitstead, and Bruno Waterfield

7:05AM BST 21 Jul 2011

Angela Merkel and Nicolas Sarkozy held crisis talks in Berlin amid warnings that a failure to break the debt crisis deadlock within 24 hours would send shockwaves around the global economy.

Early on Thursday morning, after seven hours of talks, Germany and France reached a common position on a second bailout of Greece but details of the the accord were not revealed.

The German chancellor and the French president had been barraged with pleas from political and financial leaders to reach an agreement – or risk the collapse of the single currency.

The accord between the two most powerful states in the eurozone will now be presented to the crisis summit in Brussels on Thursday of all 17 leaders of the bloc, described as the "last chance saloon" for the euro project.

Mr Sarkozy decided to travel to Berlin after the pair repeatedly failed to agree on how to get private bondholders to share the costs of a new €115bn (£101bn) bail-out for Greece.

Jose Manuel Barroso, the president of the European Commission, said: "Nobody should be under any illusion: the situation is very serious. It requires a response. Otherwise the negative consequences will be felt in all the corners of Europe and beyond."

In a rare outburst, Mr Barroso, accused European leaders of endangering "a strong single market and a strong euro".

"That is what is at stake. That is why we must provide a solution tomorrow. I believe now is the time to decide," he said. "Leaders need to come to the table saying what they can do and what they want to do and what they will do. Not what they can't do and won't do."

Mr Barroso rounded on Germany, France and the European Central Bank (ECB), blaming them all for obstructing a deal on the "feasibility and limits" of private sector involvement in a second Greek bail-out.

He criticised Germany for blocking "scope for more flexible action" through the European Financial Stability Facility (EFSF), France for holding up "repair of the banking sector" and the ECB for failing "to ensure the provision of liquidity to our banking system".

Jyrki Katainen, Finland's prime minister, said: "We are trying to avoid a total catastrophe, that is, Greece's insolvency which would most likely be highly contagious."

Meanwhile, George Papandreou, the Greek prime minister, called the summit "a make-or-break moment".

On Wednesday night tensions over the European sovereign debt crisis reached fever pitch as:

• A crucial meeting of "eurozone sherpas" – senior officials from all 17 finance ministries – was cancelled pending the possible agreement between Ms Merkel and Mr Sarkozy. The meeting, designed to thrash out details of a fresh Greek bail-out, has been pencilled in for Thursday morning, before the summit begins at lunchtime.

• A group of leading economists wrote an open letter to European leaders warning: "For the first time, the very survival of the euro is at stake." The 12 economists, including Richard Portes from the London Business School, called for the expansion of the EFSF and for permission for the fund to operate in secondary bond markets. They said: "The important thing is to acknowledge that leaders are out of time. Deciding to not decide could mark the end of the Eurozone as we know it."

• Yields on lower-rated eurozone debt fell for the second day running in the hope that European leaders can agree a fresh bail-out for Greece's debt burden and find a way to prevent the crisis from spreading. One trader said: "It might be wishful thinking – but the alternative is unthinkable."

In an attempt to assuage the rising panic across Europe, Alain Juppe, the French foreign minister, said that Mr Sarkozy and Ms Merkel's meeting was a good sign and he was "sure we will find an accord". He insisted that "there is a very broad convergence of views" among eurozone countries.

Steffen Seibert, the German government spokesman, said Ms Merkel and Mr Sarkozy knew the stakes were high. He said the pair were not intending to dictate terms to the other 15 eurozone countries, but admitted that "if France and Germany cannot agree, Europe does not move forward".

While Germany wants private bondholders to take a "haircut", France and the ECB are determined to avoid any credit event that could be seen as a default. The possible compromises, contained in a leaked document, include imposing a tax on eurozone banks; a vast debt swap in which investors would roll over their current bonds for new longer-term maturities; and an expansion of the EFSF.

Sharon Bowles, MEP, said: "The leaders must change tack from the squabbling and mixed messages ... the summit is the last chance saloon before problems become even greater."

Meanwhile, Brazil's central bank has boosted its main interest rate to 12.5pc, a quarter-point increase, extending its effort to rein in inflation in the booming South American economy.

The increase keeps the base rate at the highest in the G20 group of developed and emerging economies and was the fifth hike this year.

President Dilma Rousseff, who only took over from predecessor Luiz Inacio Lula da Silva on January 1, had promised to bring the rate down, but has been caught by rising consumer prices.