January 21, 2021

Top E.U. Official Joins Chorus Warning of Greek Fallout

BRUSSELS — On the eve of a crucial summit of euro area leaders, a senior European Union official said Wednesday that failure to act decisively on Europe’s debt crisis could have global repercussions.

The warning from José Manuel Barroso, president of the European Commission, came as the French President Nicholas Sarkozy was heading to Berlin for a pre-summit meeting with the German Chancellor Angela Merkel.

“Nobody should be under any illusion: the situation is very serious,” Mr. Barroso said in Brussels. “It requires a response, otherwise the negative consequences will be felt in all corners of Europe and beyond.”

In recent days the crisis has taken on a new and potentially more dangerous dynamic, with a spike in borrowing costs for Italy and Spain, which are much bigger economies than the three that have already sought international bailouts, namely Greece, Ireland and Portugal.

The financial markets appear unnerved by the prospect that private investors will be asked to share the burden of a second Greek bailout — which the leaders will debate on Thursday — and that this will be classified as a default, amplifying the contagion.

As long ago as February 2010, European leaders promised to take determined and coordinated action to preserve their common currency, and Mr. Barroso challenged leaders to live up to their rhetoric.

The leaders “have said they will do what it takes to ensure the stability of the euro area,” Mr. Barroso said. “Well, now is the time to make good on that promise.”

Mr. Barroso outlined the broad shape of the deal that is expected to emerge from the meeting of 17 euro-zone leaders, including measures to ensure “the sustainability of Greek public finances.”

Though he did not go into detail, these plans are likely to include a reduction in the rate of interest and an increase in the maturity date of international loans.

In addition Mr. Barroso highlighted the “scope for more flexible action through the European Financial Stability Facility,” the bailout fund that is already lending to Ireland and Portugal and which some governments want to finance a buyback of Greek bonds.

Mr. Barroso also said the plan should identify the “feasibility and limits of private sector involvement” — again without any specifics.

This has been the biggest point of conflict in constructing a second Greek bailout because Germany, the Netherlands and Finland have been pressing for private investors to share a substantial part of the pain.

In recent days, a new idea for a bank levy has been floated as one solution which would not trigger a default and risk further contagion.

Mr. Barroso also called attention to the need to repair the banking sector and “ensure the provision of liquidity to our banking system.”

Germany was initially resistant to the idea of calling a meeting of leaders on Thursday, suggesting that it was only sensible if preparations were well enough advanced to reach agreement.

On Tuesday, Mrs. Merkel, has cautioned observers and financial markets not to expect anything spectacular.

But on Wednesday, her spokesman, Steffen Seibert, sounded more positive, saying the meeting Wednesday night with Mr. Sarkozy should help. “We are very confident that there will be a good and sensible solution,” he told reporters in Berlin.

The Greek Prime Minister George Papandreou said Europe’s leaders needed to demonstrate they can resolve the debt crisis to avoid a contagion enveloping Italy and Spain.

“It could be a make-or-break moment for where Europe is going,” Mr. Papandreou said during an interview Tuesday, Bloomberg News reported.

Article source: http://feeds.nytimes.com/click.phdo?i=23b8a6cb89e01a7a154dc360c8a8ce93

Merkel Warns Against Inaction in Debt Crisis

BERLIN (AP) — German Chancellor Angela Merkel said Saturday that it was important to help indebted European countries in order to assure that a global economic upswing, and Germany’s economic health, were not undermined by further debt woes in the Euro zone.

In a message apparently intended to convince a skeptical German public that Greece and other struggling economies should not be allowed to default, Mrs. Merkel asserted that Germany’s own economic recovery could be endangered. “If we don’t act right, that could happen,” she said in her weekly video podcast, “but that’s exactly what we want to avoid.”

“That’s why we say that we cannot simply allow an uncontrolled bankruptcy by a country,” Mrs. Merkel said, adding that Europe needed to see how it could help struggling countries improve their competitiveness and also allow them to reduce their debts. She did not mention Greece by name.

“We must do nothing that endangers the global upswing as a whole and would then put Germany in danger again,” she said.

Mrs. Merkel said that the German economy contracted by nearly 5 percent in 2009 following the global financial crisis, saying “there hadn’t been anything like it in decades, and anything like that absolutely has to be prevented from recurring.”

Wolfgang Schaeuble, the German finance minister, is pushing for Greece to get more rescue loans only if investors agree to get repaid seven years late on their Greek bonds. That would give the country more time to get a handle on its debt of 340 billion euros ($491 billion).

That demand is meant to rally support among the public and, particularly, lawmakers in Merkel’s center-right coalition — some of them restless at the idea of giving Greece more money.

However, the European Central Bank, concerned about the reaction of the markets, says that Greece must not change the terms of its debt in ways that would put it in official default. Nevertheless, the head of a group that represents Germany’s private-sector banks signaled readiness to discuss the proposal.

Ratings agencies have said that a bond repayment that materially disadvantages bondholders would be considered a default. Germany has remained vague about some crucial details, such as interest rates and collateral provisions.

Article source: http://www.nytimes.com/2011/06/12/business/global/12euro.html?partner=rss&emc=rss