September 23, 2020

Germany and France Back Greece on Austerity Effort

In their call, French President Nicolas Sarkozy and German Chancellor Angela Merkel had been expected to tell the Greek prime minister, George 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.

Together, they are pushing all euro zone states to ratify as soon as possible decisions made on July 21, which expand the European Financial Stability Facility and allow it increased flexibility to protect Greece and other heavily indebted members as they work to cut deficits and stabilize their finances.

The facility would be expanded to 440 billion euros to allow it to cover Greece, Ireland and Portugal, buy bonds in the secondary markets, aid troubled banks and offer lines of credit.

Wall Street rallied on the European statement, with the Dow Jones industrial average up more than 2 percent by late afternoon.

Earlier Wednesday, France brushed off concerns about its biggest banks Wednesday, insisting that it had no plans to nationalize any of them despite a credit rating downgrade linked to their exposure to the limping Greek economy.

Moody’s Investors Service downgraded two of France’s biggest banks Wednesday, Société Générale and Crédit Agricole, citing the fragile state of bank financing markets and, in the case of Crédit Agricole, exposure to the Greek economy. It kept a third, BNP Paribas, under review.

The French government’s latest attempt at reassurance about the health of their banks came as the leaders of France and Germany prepared to speak with their Greek counterpart amid worries that Athens may default on its heavy debt load.

U.S. Treasury Secretary Timothy Geithner also sought to soothe nerves over a possible Greek default, saying in a CNBC interview that European leaders have the capacity “to hold this thing together.”

The head of the European Commission also said he would present options soon for the introduction of euro area bonds — the latest effort by European leaders to show they are trying to strengthen the foundations of their monetary union.

The credit ratings cuts had been widely anticipated by investors but nevertheless sparked knee-jerk drops in the euro and Asian stock markets, both of which had already been on the back foot earlier in the Asian trading day.

But the downgrades were less severe than many analysts had anticipated, and European markets rose.

The Bank of France governor, Christian Noyer, called the ratings cuts “good news” because they were less than expected. In a radio interview, he also said it would make “no sense” to nationalize any French bank, calling such talk “surreal.”

Mr. Geithner said in the CNBC interview that there was “no chance that the major countries of Europe will let their institutions be at risk in the eyes of the market.”

Still, underscoring concerns about the impact of Europe’s debt crisis and banking problems on the United States, Mr. Geithner plans to take the unusual step of attending a meeting of finance ministers from all 27 European Union nations in Poland on Friday.

In a stark warning, the Polish finance minister, Jacek Rostowski, who will host that meeting,  said at the European Parliament in Strasbourg, France, on Wednesday that the European Union itself “might not survive” a collapse of the euro zone.

Société Générale, BNP Paribas and Crédit Agricole all hold Greek debt. Crédit Agricole and Société Générale are more exposed to the Greek banking system through subsidiaries. But Moody’s said Société Générale’s risks from its Greek holdings were relatively modest and manageable.

Société Générale, BNP Paribas and Crédit Agricole are considered integral actors in the French economy, lending billions of euros to businesses and individuals, and the government has indicated it would never let them any of them fail.

Stephen Castle contributed reporting from Brussels and Bettina Wassener contributed from Hong Kong.

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.

Article source: http://www.nytimes.com/2011/09/15/business/global/france-expresses-confidence-in-banks-after-downgrades.html?partner=rss&emc=rss

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