President Nicolas Sarkozy and Chancellor Angela Merkel initially planned a joint statement in support of their banks earlier Tuesday, but Berlin argued against it as unnecessary, French officials said. Still, France is pressing for a stronger signal from Germany that Europe will act to resolve the issue before new doubts about Greek solvency spread further contagion to other indebted states and their banks.
Mr. Sarkozy met Tuesday evening to discuss the euro crisis at the Élysée Palace in Paris with Herman Van Rompuy, the president of the European Council, which represents the 27 heads of government and state in the European Union. But neither man spoke afterward to the press.
Mr. Van Rompuy has been asked by Germany and France to head a similar council of the 17 countries in the euro zone, and he has been an important mediator between Paris and Berlin. Plans were clearly being laid for a serious conversation with Mr. Papandreou, whose government has proven incapable so far of making the kinds of legal changes and budget cuts in the middle of a deep recession that Athens had promised its European partners and the International Monetary Fund.
Despite the stepped-up pace of economic diplomacy, Europe’s response to the debt crisis still appeared to be behind the curve. That was underscored by the announcement that Timothy F. Geithner, the U.S. Treasury secretary, would make a rare, if not unprecedented, appearance at a meeting of European finance ministers, to be held Friday in Wroclaw, Poland. The trip will be his second across the Atlantic in a week, following the Group of 7 session in Marseille this past weekend.
“Clearly the U.S. Treasury is disappointed with the direction of the European debt crisis and is looking for action, before further sections of the banking system are drawn in and a global financial crisis is re-visited,” Chris Turner and Tom Levinson, strategists at ING, wrote in a research note.
Growing concern in the United States that Europe’s problems threaten the broader global economy were also evident from news that President Barack Obama, during a meeting with Spanish-speaking journalists in Washington, called on euro zone leaders to show markets that they were taking responsibility for the debt crisis.
“In the end the big countries in Europe, the leaders in Europe must meet and take a decision on how to coordinate monetary integration with more effective coordinated fiscal policy,” EFE, a Spanish news agency, quoted Mr. Obama as saying.
France and Germany are pressing to put into place the decisions made at the last euro zone summit meeting in Brussels on July 21, but those changes have to be ratified by all 17 members. Mrs. Merkel is pressing for a vote in the Bundestag, the German Parliament, this month, and said Tuesday that Germany would ensure there would be no “uncontrolled default” of Greece that could pull down the euro zone.
“In a currency union with 17 members, we can only have a stable euro if we prevent disorderly processes,” she said. “Therefore it is our top priority to avoid an uncontrolled default, because it would hit not only Greece. The danger would be very high that it would hit many other countries.”
Mrs. Merkel emphasized again that there is no quick fix to the euro, and that a comprehensive rescue package needed time. “It cannot be done in a few measures but through a special, long process,” she said. And she vowed again that “everything must be done to keep the euro area together politically, because we would very quickly face a domino effect.”
But her talk of default, uncontrollable or not, was seen as important, because there is increasing skepticism that even the second bailout of Greece, part of the July 21 package, will be enough to bring it to a sustainable level of debt. Many experts now predict that an expanded €440 billion, or $604.3 billion, rescue fund, known as the European Financial Stability Facility, once ratified, could be used to sharply restructure Greek debt by the end of the year and to recapitalize banks that are made vulnerable by further write-downs on Greek debt.
Despite the exposure of large French banks to Greek and other sovereign debt, French officials insisted again on Tuesday that the banks are solid, well capitalized and can handle any outcome to the Greek mess.
The trick for European leaders is to isolate Greece as much as possible, even if that means the kind of restructuring they denied they would ever contemplate six months ago.
Article source: http://www.nytimes.com/2011/09/14/business/global/italian-bond-sale-gets-tepid-response-as-debt-crisis-festers.html?partner=rss&emc=rss