Europe Struggles With Managing Its Support of Greece

That was the stay-the-course upshot of a conference call Wednesday evening in Europe by President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany with the Greek prime minister, George Papandreou.

With no new proposals issued, the conversation seemed mainly intended to send a message that Europe’s two richest countries do not intend to let Greece’s debt crisis spiral out of control.

The conversation came at the end of a day in which European stock markets took a breather from the recent spate of crisis-induced sell-offs, even shrugging off the credit-rating downgrade of two big French banks.

Stocks closed higher in the United States, too, as the Treasury secretary, Timothy F. Geithner, voiced confidence in Europe’s ability to “hold this thing together,” but indicated it was the Europeans’ problem to solve.

Mr. Sarkozy and Mrs. Merkel told Mr. Papandreou that he must meet deficit-cutting promises to the European Union and the International Monetary Fund in return for subsidized loans and a second bailout, according to the French and German governments. Mr. Papandreou, in turn, briefed them about Greek cabinet decisions on further state job cuts and other economic reforms, Greek officials said.

France and Germany also promised full support for Greece and for preserving the euro zone.

The French and Germans are pushing all euro zone states to rapidly ratify an agreement reached on July 21 to expand the bailout program known as the European Financial Stability Facility to 440 billion euros ($601 billion) and give it greater flexibility to protect Greece and other heavily indebted members as they work to stabilize their finances.

A Greek government spokesman, Ilias Mossialos, said that Germany and France had expressed confidence that new austerity measures announced by the Greek government over the weekend — chiefly a new property tax — would ensure that Athens meets deficit reduction goals set by foreign creditors, while securing a sixth installment of emergency funds on which its solvency depends.

Before the call, a French government spokeswoman, Valérie Pécresse, emphasized that France was determined “to do everything in order to save Greece.”

But France and Germany are also determined to save their own banks, which are heavily exposed to Greek debt. And analysts say the banks have not fully written down that exposure to a realistic level, given wide expectations that the Greek debt would need to be restructured yet again, forcing its creditors to absorb further losses.

France suffered a minor blow on Wednesday as two of its biggest banks, Société Générale and Crédit Agricole, were each downgraded a notch by Moody’s Investors Service — a move expected, but not as severe as some had predicted. Moody’s kept a third bank, BNP Paribas, under review, but said its profitability and capital base provided an adequate cushion to support its exposure to Greek, Portuguese and Irish debt.

French officials insisted that the banks were strong, and implied that Paris would do whatever was necessary to recapitalize them if necessary to cover any Greek losses.

Mr. Geithner also sought to soothe nerves over a possible Greek default in a CNBC interview Wednesday morning. Mr. Geithner, who plans to attend an informal meeting of European finance ministers on Friday in Poland, said “there is no chance that the major countries of Europe will let their institutions be at risk in the eyes of the market.”

But he added: “They recognize that they have been behind the curve. They recognize that it will take more force behind their commitments.”

Mr. Geithner was not specific about what needed to be done, but said the United States was concerned “because it adds to a lack of confidence.” But ultimately, he said, “this is their challenge.”

Nicholas Kulish reported from Berlin. Additional reporting was contributed by Liz Alderman in Paris, Stephen Castle in Brussels, Androniki Kitsantonis in Athens and Landon Thomas Jr. in London.

This article has been revised to reflect the following correction:

Correction: September 14, 2011

An earlier version of this article erroneously stated that the downgrade of Société Générale was related to its exposure to the Greek economy.

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