March 29, 2024

Berlusconi Chooses Ignazio Visco to Head Bank of Italy

Critics had cited the stalemate as further evidence of the Italian leader’s ebbing clout as the country struggled to avoid becoming the next victim of the European debt crisis.

Ignazio Visco, currently the No. 3 official at the bank, was nominated to succeed Mario Draghi as bank governor, just days before Mr. Draghi takes over as president of the European Central Bank.

The prime minister’s office said the nomination was made in a letter sent to the bank’s board, which will meet Monday to provide a nonbinding opinion.

The appointment is subject to ratification by President Giorgio Napolitano before it can take effect.

The decision came after weeks of stalemate over Mr. Draghi’s successor. Mr. Berlusconi has struggled to assert authority over his increasingly fractious majority in Parliament as a widening debt crisis racks markets in Europe and threatens Italy.

Although Mr. Visco had not been considered to be among the leading candidates for the job, initial reaction to his appointment was positive.

Pier Luigi Bersani, leader of the main opposition Democratic Party, said Mr. Visco had the requisite “authoritativeness and autonomy” required to guide the central bank, the Ansa news agency reported.

Mr. Draghi is set to start at the European bank on Nov. 1, taking over from Jean-Claude Trichet.

The selection of Mr. Visco, deputy director general of the Bank of Italy since 2007, came as a surprise after weeks of fervent — and turbulent — petitioning that ended in a three-way deadlock between Lorenzo Bini Smaghi, currently on the six-member executive board of the European bank; Fabrizio Saccomanni, the Bank of Italy’s deputy governor; and Vittorio Grilli, director general of the Treasury.

The French president, Nicolas Sarkozy, had lobbied strongly in favor of Mr. Bini Smaghi, whose appointment would have made room for a French member on the European Central Bank board. Mr. Saccomanni was favored by the Bank of Italy, while Mr. Grilli was backed by Finance Minister Giulio Tremonti, who has clashed recently with Mr. Berlusconi.

As the deadline for nominating a candidate drew closer, criticism over the government’s inability to fill the post went hand in hand with growing doubts over the government’s inability to confront the challenges posed by the debt crisis.

Critics say that austerity measures passed this summer — meant to balance the budget by 2013 — are insufficient, and while the government pledged last month to quickly present wide-ranging measures to stimulate growth, it has yet to present anything concrete.

In a front-page editorial on Thursday in the Milan daily Corriere della Sera, titled “A Masterpiece of a Mess,” the editor in chief, Ferruccio de Bortoli, said the delay in appointing the governor was a “glaring demonstration of a lack of leadership and even of national dignity.”

Mr. Visco, 61, rose to his current position from within the bank’s ranks.

A native of Naples, Mr. Visco studied economics at the University of Rome and at the University of Pennsylvania, and joined the Bank of Italy in 1972. Two years later he began working in the bank’s economic research department, becoming its head in 1990.

From 1997 to 2002, he was chief economist at the Paris-based Organization for Economic Cooperation and Development and served as the Bank of Italy’s adviser for Group of 7 and Group of 20 meetings.

Article source: http://www.nytimes.com/2011/10/21/business/global/berlusconi-makes-surprise-pick-for-bank-of-italy.html?partner=rss&emc=rss

Berlusconi Makes Surprise Pick for Bank of Italy

Ignazio Visco, currently No. 3 official at the bank, was nominated to replace Mario Draghi as bank governor, just days before Mr. Draghi takes over the post of president of the European Central Bank.

The prime minister’s office said the nomination was made in a letter sent to the bank’s Board of Directors, which will meet on Monday to provide a non-binding opinion. President Giorgio Napolitano must formally ratify the appointment before it takes effect.

The decision comes after weeks of stalemate over Mr. Draghi’s successor. Mr. Berlusconi has struggled to assert authority over his increasingly fractious majority in Parliament amid the widening debt crisis that has wracked markets in Europe, with Italy within the crosshairs.

Although Mr. Visco had not been considered to be among the leading candidates for the job, initial reaction to his appointment was positive. Pier Luigi Bersani, leader of the main opposition Democratic Party, said Mr. Visco had the requisite “authoritativeness and autonomy” required to guide the central bank, the Ansa news agency reported.

Mr. Draghi is set to start at the E.C.B. on Nov. 1, taking over from Jean-Claude Trichet.

The selection of Mr. Visco, deputy director general of the bank since 2007, came as somewhat of a surprise after weeks of fervent — and turbulent — petitioning that ended in a three-way deadlock among Lorenzo Bini Smaghi, currently a member of the six-member executive board of the E.C.B.; Fabrizio Saccomanni, the Bank of Italy’s deputy governor; and Vittorio Grilli, director general of the Finance Ministry.

The French President Nicolas Sarkozy had lobbied strongly in favor of Mr. Bini Smaghi, whose appointment would have made room for a French national on the E.C.B. board. Mr. Saccomanni was favored by the Bank of Italy, while Mr. Grilli was backed by Mr. Tremonti, who has clashed recently with Mr. Berlusconi.

As the deadline for nominating a candidate drew closer, criticism over the government’s inability to fill the post went hand in hand with growing doubts over the government’s inability to confront the challenges posed by the debt crisis.

Critics say that the austerity measures passed this summer — meant to balance the budget by 2013 — are insufficient, and while the government pledged last month to quickly present wide-ranging measures to stimulate growth, it has yet to present anything concrete.

In a front-page editorial Thursday in Milan daily Corriere della Sera titled “A masterpiece of a mess,” the editor-in-chief Ferruccio de Bortoli said the delay in appointing the governor was a “glaring demonstration of a lack of leadership and even of national dignity.”

Mr. Visco, 61, rose to his current position from within the bank’s ranks. A native of Naples, he studied economics at the University of Rome and at the University of Pennsylvania, and joined the Bank of Italy in 1972.

Two years later he began working in the bank’s economic research department, becoming its head in 1990. From 1997 to 2002, he was chief economist at the Paris-based Organization for Economic Cooperation and Development and served as the Bank of Italy’s sherpa, or adviser, for Group of Seven and Group of 20 meetings.

Article source: http://www.nytimes.com/2011/10/21/business/global/berlusconi-makes-surprise-pick-for-bank-of-italy.html?partner=rss&emc=rss

Aid Plans Emerge for Europe’s Banks

With the European Commission scheduled on Wednesday to release proposals to recapitalize Europe’s banks, France announced its own detailed plans aimed at protecting its most vulnerable financial institutions.

Alain Juppé, the French foreign minister, told the National Assembly that several leading French banks like BNP Paribas, Crédit Agricole and Société Générale, which are deeply exposed to the sovereign debt of Greece and other Southern European countries, would move to increase their capital reserves, initially by using their own revenue or through the financial markets. Money from the government would be drawn upon only as “a last resort,” he said, according to Reuters.

But Mr. Juppé said that the move, which was agreed upon with Germany during talks on Sunday, meant the banks’ best buffers against losses — so-called core Tier 1 capital — would increase to 9 percent or higher, from 7 percent, by 2013.

It was unclear whether any of that money might be drawn from the proposed euro zone bailout fund rather than directly from French government funds.

The issue is particularly sensitive in France because of fears that the country could lose its triple-A credit rating if it had to inject billions of euros into its banks. That would be a huge political setback for the French president, Nicolas Sarkozy, who faces election next year.

The French announcement on intervention came as the euro zone entered a critical countdown, with investors in financial markets expecting a European Union summit meeting on Oct. 23 and the leaders of the Group of 20 leading economies Nov. 3 to endorse major decisions to help resolve the European debt crisis.

Meanwhile, lawmakers in Slovakia voted late Tuesday to reject the expansion of the euro rescue fund. The 440 billion euro, or $601 billion, rescue fund, approved by the 16 other members of the euro currency zone, was entwined with the domestic politics of Slovakia, the small former Soviet bloc country. Officials here in Brussels were weighing the possibility of a different way to circumvent the problem if Slovakia failed to pass the measure.

In Brussels, Jean-Claude Trichet, the departing president of the European Central Bank, underlined the urgent task confronting European leaders, who have consistently failed to rise to the challenge.

“Sovereign stress has moved from smaller economies to some of the larger countries,” Mr. Trichet told European lawmakers. “The crisis is systemic and must be tackled decisively.”

The French bank recapitalization plan was expected to complement proposals from the European Commission, whose president, José Manuel Barroso, said that he would offer proposals Wednesday to protect Europe’s banks from potential losses from the sovereign debt that they hold from Greece, Portugal, Italy and Spain.

Like the French-German plan, the European proposals were likely to emphasize that taxpayer money would be used only as a last resort.

Meanwhile in Athens, there was a breakthrough in negotiations over Greece’s efforts to get its public finances under control to qualify for vital international aid. Representatives from the International Monetary Fund, the European Commission and the European Central Bank said that Greece’s next slice of loans, totaling 8 billion euros, would most likely be disbursed in early November after approval from euro zone finance ministers and the I.M.F.

The statement from the representatives of the so-called troika ended weeks of stalemate between the Greek government and its international lenders, and concluded a period of brinkmanship that intensified last week when European finance ministers postponed a decision on whether to approve the loan.

Now, after lengthy negotiations, the declaration Tuesday paved the way for the release of enough money for Athens to pay its bills and postpone any unplanned default or restructuring of its debts.

The troika will have to submit a full report for approval by euro zone finance ministers, who will gather before the Oct. 23 European summit meeting, and by the I.M.F. board, which is expected to meet in early November.

Stephen Castle reported from Brussels and Niki Kitsantonis from Athens.

Article source: http://feeds.nytimes.com/click.phdo?i=a878a6b0a344c5811eaa0ffe5e028561

Markets Ahead on Hopes for European Bank Plan

However, mounting expectation of a wave of recapitalization in the European banking sector as well as Erste Group Bank’s warning that it would make a big loss this year prompted European investors to lock in some of the recent strong gains made in banking stocks.

On Wall Street, the Standard Poor’s 500-stock index opened sharply higher, with an early gain of 2.7 percent. The Dow Jones industrial average gained 2.3 percent and the Nasdaq composite index rose 2.9 percent.

At midafternoon in Europe, the Euro Stoxx 50 was up 0.6 percent. The FTSE 100 in London was up 0.9 percent and the DAX in Frankfurt rose 0.7 percent. Europe’s main volatility index dropped to its lowest level since early September.

“We’re getting signals on a lot of fronts that the end of the crisis is coming,” said Valerie Gastaldy, head of the Paris-based technical analysis firm, Day By Day.

“The bottom line for European equities is that banking stocks have recently shown resilience despite that nothing has really changed on the news front. The question now is: Is this the start of a bear market rally that will last for a few weeks, or is it the start of a trend that could go on for six months? It too early to say.”

German bond futures hit their lowest level since early September on Monday, signaling a potential change in trend.

Shares of Erste Group Bank tumbled 14 percent after the East European lender warned it would post a big loss on the year and would not pay a dividend after taking hits on its foreign currency loans in Hungary and euro zone sovereign debt.

Société Générale was down 0.4 percent, HSBC down 0.2 percent and UBS down 0.3 percent, as investors locked in recent gains.

Over the weekend, the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, said they would work out a plan to recapitalize European banks, come up with a sustainable answer to Greece and accelerate economic coordination in the euro zone by the time of a Group of 20 gathering in Cannes, France, on Nov. 3-4.

“Recapitalizing the banks would be a strong signal sent to the market, even if banks don’t necessarily need fresh funds,” said Benoit de Broissia, an analyst at KBL Richelieu.

“It would help ease the tensions and restore investors’ confidence in the sector. The best solution would certainly be an investment from states in the form of preferred shares that could be bought back when things settle down.”

Article source: http://feeds.nytimes.com/click.phdo?i=ac4416890a3aa6dbc01b6ba71cc375e0

Allies of French President Are Questioned in Graft Inquiry

PARIS — Three allies of President Nicolas Sarkozy of France on Friday found themselves the focus of an expanding investigation into a 17-year-old case involving suspected corruption in the sale of submarines to Pakistan.

The inquiry has gathered momentum at a difficult time for Mr. Sarkozy, only seven months before he is to seek re-election.

The case, known here as “the Karachi Affair,” centers on kickbacks that investigators suspect were paid to secure the sale of three submarines to Pakistan in 1994 and then used to help finance the presidential campaign of former Prime Minister Edouard Balladur in 1995.

On Thursday, the police arrested one of Mr. Sarkozy’s allies, Nicolas Bazire, who was a witness at his wedding to Carla Bruni in 2008 and was also Mr. Balladur’s campaign chief in 1995. Mr. Bazire was accused of complicity in the misuse of public money.

Earlier this week, the police also arrested Thierry Gaubert, Mr. Sarkozy’s financial adviser in 1994 and 1995, when Mr. Sarkozy was a budget minister and a spokesman for Mr. Balladur. Investigators are probing possible connections between Mr. Gaubert and Ziad Takieddine, a Franco-Lebanese businessman who was charged with fraud last week over arms contracts with Pakistan and Saudi Arabia.

After questioning, Mr. Bazire and Mr. Gaubert were released.

In another development that could pose the most damage to Mr. Sarkozy, Paris prosecutors said Friday that they would open an investigation into accusations that Brice Hortefeux, a former interior minister who is likely to run Mr. Sarkozy’s presidential campaign next year, might have broken the law by obtaining access to the investigation into the submarine sales and then contacting Mr. Gaubert.

According to transcripts of telephone conversations published in French newspapers, Mr. Hortefeux called Mr. Gaubert before his arrest and warned him that his wife had “given up a lot” when she was questioned by the police as part of the investigation into the Karachi Affair.

“She was interviewed,” Mr. Hortefeux said, according to the published transcripts. “She knows. She was aware of your activities.”

Mr. Sarkozy has repeatedly denied any knowledge of suspect financing in Mr. Balladur’s campaign and any involvement in illegal financing arrangements. On Thursday, the presidential palace issued a statement saying that Mr. Sarkozy’s name appeared nowhere in the investigation’s files.

“All the rest is slander and political manipulation,” the statement said.

In 1994, France signed a contract for the sale of three Agosta 90B submarines to Pakistan, for about $1.1 billion. The contract also included provisions for about $111 million in commissions, which were then deemed legal, to be paid to Pakistani and French intermediaries.

After Jacques Chirac was elected president in 1995, he pushed to change the law and also stopped payment of the commissions, which he suspected of having involved kickbacks to French officials, including Mr. Balladur, who had become a bitter political enemy.

An investigative judge began looking into the submarine sales to Pakistan in 2002, after a terror attack in Karachi killed 11 French technicians involved in the construction of the ships.

The attack was originally thought to be the work of Al Qaeda, but a government report in 2002 suggested that it might have been organized by Pakistani officials who were angered by Mr. Chirac’s decision to stop paying the commissions.

On Friday, the arrests of Mr. Bazire and Mr. Gaubert appeared to shake Mr. Sarkozy’s governing party. The newspaper Le Figaro quoted anonymous Sarkozy supporters saying that they were concerned about the potential damages the investigation could cause. Others saw it as a political tactic to hurt Mr. Sarkozy before the presidential election in May.

Prime Minister François Fillon issued a statement on Thursday denouncing “the insidious and slanderous attacks aimed at the president.”

Members of the opposition Socialist Party had a different view of the arrests. Martine Aubry, a candidate for the Socialist Party’s nomination for president, described the Karachi Affair as “certainly one of the most serious in the Fifth Republic.”

Article source: http://www.nytimes.com/2011/09/24/world/europe/allies-of-french-president-are-questioned-in-graft-inquiry.html?partner=rss&emc=rss

U.S. Pressures Europe to Act With Force on Debt Crisis

In phone calls and meetings over the last week, President Obama urged Mrs. Merkel and President Nicolas Sarkozy of France to take coordinated measures to prevent Greece’s debt woes from spreading to its neighbors. The American pressure will be on display again Friday and this weekend at a gathering of the world’s finance ministers in Washington.

Yet administration officials played down the likelihood of concerted action emerging from these meetings of the International Monetary Fund and the World Bank. At best, they said, the ministers might lay the groundwork for a bolder response in November, when leaders of the Group of 20 industrialized nations meet in Cannes, France.

The lack of global action comes even amid the growing recognition that Europe’s debt crisis is now perhaps the largest shadow hanging over the global economy. Although trade with Europe represents only a small share of the American economy, Europe’s problems have repeatedly rattled Wall Street over the last year and a half, eroding confidence and exacerbating fears of businesses and consumers.

“The biggest single risk to the United States today is that the European situation will spiral out of control,” said Edwin M. Truman, a former Treasury official who is now at the Peterson Institute for International Economics. “Europe is not going to save the U.S. economy, but it could be the straw that breaks it.”

Kenneth Rogoff, a Harvard economist who has written about the history of financial crises, puts Europe’s effect on the United States in blunt political terms. “The downside scenario is awful,” he said, “and if it happens before the U.S. election, it would turn a toss-up election into one in which the president is a huge underdog.

“The administration’s hope is that the Europeans will kick the can down the road far enough that it gets past the election,” said Mr. Rogoff, who has advised Mr. Obama and Republicans.

The administration has trained much of its attention on the figure who may have the greatest ability to influence the outcome in Europe: the German chancellor. Since he took office Mr. Obama has met or spoken with Mrs. Merkel 28 times  — a pace befitting someone who may have as much influence on his fortunes as his rivals in Washington.

In their most recent call, on Monday, Mr. Obama implored Mrs. Merkel to throw more financial firepower at the crisis. The conversation delved into technical details, as well as the risk of financial contagion, a senior administration official said.

Mrs. Merkel faces daunting political obstacles — which Mr. Obama fully recognizes, this official said — in persuading the German public to spend hundreds of billions of euros to bail out Greece and potentially other Mediterranean countries.

While the United States is offering lessons drawn from its own crisis in 2008, Treasury Secretary Timothy F. Geithner and other officials are treading carefully to avoid antagonizing Europeans who complain the United States has no business lecturing them. When Mr. Geithner attended a meeting of European finance ministers last week in Wroclaw, Poland, a handful of officials from smaller countries took shots at him afterward, but American officials said the meeting was more productive behind closed doors.

The administration’s lobbying effort takes two main forms. One is to press the argument, supported by many economists, that Germany benefits enormously from preserving the euro in its current form rather than abandoning it or standing by as it unravels.

By combining its Deutschmark with the currencies of poorer countries, like Greece, Germany has been able to have a cheaper currency than it would on its own and to export far more than it otherwise might. And exports, which account for a larger share of the German economy than the American economy, have been the main engine of Germany’s recovery.

Article source: http://www.nytimes.com/2011/09/24/business/us-pressures-europe-to-act-with-force-on-debt-crisis.html?partner=rss&emc=rss

Sarkozy and Merkel to Hold Video Conference With Papandreou

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

Pledge of Euro Unity May Not Be Enough to Satisfy Markets

Reflecting the uncertainty, European stock markets were mixed on Wednesday, with indexes in Britain and Germany down at midday but French and Italian shares showing modest gains. The response seemed to show that the two leaders’ announcement had failed initially to ease market jitters.

“In terms of new policies to address the immediate debt problems, there was little new,” analysts at Nomura said in a note Wednesday.

President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany called for each nation in the euro zone to enshrine a “golden rule” into their national constitutions to work toward balanced budgets and debt reduction, a level of discipline well beyond the current, oft-broken commitment.

They also pledged to push for a new tax on financial transactions, and for regular summit meetings of the zone’s members under the leadership of Herman Van Rompuy, who heads the council of all 27 European nations.

“We are certainly heading for greater economic integration of the euro zone,” Mr. Sarkozy said.

The much-anticipated meeting at the Élysée Palace here produced little that would seem to quell the nerves of bond traders, who are becoming increasingly worried that the economic slowdown in both Germany and France will make it harder to overcome Europe’s debt crisis.

Both leaders ruled out issuing collective bonds, known as eurobonds, to share responsibility for government debt across member states, and they opposed a further increase in a bailout fund that will not be put into place until late September at the earliest.

Mrs. Merkel repeated that there was “no magic wand” to solve all the problems of the euro, arguing that they must be met over time with improved fiscal discipline, competitiveness and economic growth among weaker states.

Even the stronger members of the euro zone have stalled. Official figures released on Tuesday showed that growth in the zone fell to its lowest rate in two years during the second quarter, and that Germany — considered the Continent’s locomotive — came almost to a standstill, growing 0.1 percent.

The German figures followed data showing that the French economy was flat in the second quarter, leaving Europe’s two largest economies stagnant. That means the two pillars of the European economy may be less willing and able to prop up their weaker counterparts, analysts warned.

Across the euro zone, gross domestic product rose only 0.2 percent in the second quarter from the first, when growth had advanced by 0.8 percent, according to Eurostat, the European Union’s statistics agency.

The joint French-German proposals were as modest as German officials had forecast. And the most ambitious idea — that all euro zone states legally bind themselves to working toward balanced budgets and reduced sovereign debt — is unlikely to be accepted by all member states. It may not even get through the French constitutional process, since Mr. Sarkozy does not have a constitutional majority in Parliament.

The proposal calling for twice-yearly meetings and increased integration could formalize the “two-speed Europe” — of those in the euro zone and those outside it — that many warned of when the European Union expanded so rapidly after the collapse of the Soviet Union in the early 1990s.

Both leaders said that France and Germany must set an example, citing their agreement to propose jointly a financial-transaction tax by 2013 as “an example of convergence” needed in the entire euro zone. But such a tax is unlikely in the larger European Union, especially if Britain, which is outside the euro zone and contains Europe’s biggest financial center, continues to resist the idea.

They also said they would work to harmonize French and German economic assessments and, in the future, corporate tax rates.

“France and Germany are committed to strengthen the euro,” Mrs. Merkel said. “To that end we need to better integrate our economies” and “to see that the stability pact will be acted on.”

The stability pact, a central element of the treaty that established the euro zone, commits members to keep fiscal deficits to 3 percent of gross domestic product a year and total sovereign debt under 60 percent of G.D.P. Both benchmarks are regularly missed.

Steven Erlanger reported from Paris, and Jack Ewing from Frankfurt.

Article source: http://www.nytimes.com/2011/08/18/business/global/pledge-for-euro-unity-may-not-be-enough-to-satisfy-markets.html?partner=rss&emc=rss

I.M.F. Chief to Face French Investigation

The ruling by the Court of Justice of the Republic, which oversees the actions of French ministers, means that Ms. Lagarde may have to gird for a possibly lengthy legal process to defend against the criminal charge.

But legal experts said it was unlikely to interfere with her management of the fund, which was aware before her appointment that an investigation could be called.

“She should be able to continue her duties with no problem because the I.M.F. was made aware of this potential investigation when she submitted her candidature, and they voted for her nonetheless,” said Christopher Mesnooh, a partner specializing in international business law at Field Fisher Waterhouse in Paris.

The International Monetary Fund’s board said in a statement it was “confident” that Ms. Lagarde “will be able to effectively carry out her duties.”

Ms. Lagarde ushered in a new era at the I.M.F. in June, becoming the first woman to take on one of the world’s top positions in finance after Dominique Strauss-Kahn stepped down to deal with allegations that he sexually assaulted a hotel maid in New York.

Her contract contains a section on conduct and ethics that requires her to “strive to avoid even the appearance of impropriety.” Given that she was up front about the matter when applying for the I.M.F. job, “no one could come back and say now you have to take leave or resign — that would be indefensible,” Mr. Mesnooh said.

At issue in the French court case is whether Ms. Lagarde abused her authority as finance minister in a long-running legal soap opera.

In 2007, she ordered that a dispute between Bernard Tapie, a flamboyant French businessman and a friend of President Nicolas Sarkozy, and Crédit Lyonnais, a state-owned bank, be referred to an arbitration panel. The panel ultimately awarded Mr. Tapie a settlement of about $580 million, including interest.

Mr. Tapie, a former head of the Adidas sports empire and a former Socialist minister who changed political loyalties to support Mr. Sarkozy’s 2007 presidential campaign, accused Crédit Lyonnais in 1993 of bilking him when it oversaw the sale of his stake in Adidas.

The scandal-ridden bank was effectively put into state hands, and when Mr. Strauss-Kahn was finance minister in 1999, he ruled that the state was responsible for dealing with Mr. Tapie’s claim.

But it was Mr. Sarkozy who later suggested that the finance ministry, which by then was headed by Ms. Lagarde, move the case to arbitration.

Ms. Lagarde has defended her role numerous times in the case, at one point declaring the allegations to be a smear campaign and vowing that she acted with “rigor and transparency” to keep the dispute from increasing costs to taxpayers.

The case could drag on for months if not years, legal experts said, as investigators pore through documents. The charge comes with a theoretical penalty of 75,000 euros and five years in prison.

Article source: http://feeds.nytimes.com/click.phdo?i=70e49b02a9dbbe95f2d43080c6bf4d1e

French-German Proposal for Europe Emerges Before a Meeting on Greece

Details of the agreement were not disclosed.

Released by the office of the French president, Nicolas Sarkozy, the statement said he and Chancellor Angela Merkel of Germany had reached an agreement they presented to Herman Van Rompuy, president of the European Council, for consideration.

The leaders of the 17 member countries of the euro zone are to meet in Brussels to try to keep the debt crisis from spiraling out of control after a week of market turbulence in which borrowing costs spiked in Italy and Spain.

Many see the meeting as a moment of truth, particularly for Mrs. Merkel, whose caution has been blamed by some for the region’s failure to stem the crisis, and who, earlier this week, played down expectations of a breakthrough on Thursday.

“Nobody should be under any illusion: the situation is very serious,” José Manuel Barroso, president of the European Commission, the executive arm of the European Union, said earlier in the day. “It requires a response. Otherwise the negative consequences will be felt in all corners of Europe and beyond.”

The commission was arguing for a plan that would have private creditors swap Greek bonds that mature before 2019 for new 30-year bonds, thereby prompting a selective default, according to an official briefed on the negotiations who was not authorized to speak publicly.

The terms of the plan would imply a 20 percent reduction in the value of Greek bonds, the official said, a change that would raise tens of billions of euros to be directed to support the Greek bailout.

In addition, the other countries in the euro area and the International Monetary Fund would contribute 71 billion euros, or $100 billion, to the rescue plan, up to 2014.

Meanwhile, a tax on the banks equivalent to 0.025 percent of the assets of financial institutions could raise around 50 billion euros over five years and would finance a buyback of Greek bonds via the euro zone bailout fund known as the European Financial Stability Facility, the official said. That would reduce the stock of Greek debt by around 20 percentage points of gross domestic product.

Although a tax on banks has been discussed for several days, it had previously been presented as a tool for raising private sector financing without provoking a default, rather than a means of raising additional money. There are also technical problems with a bank tax that would have to be levied by each national government and would exclude countries that did not use the euro even if they had Greek liabilities.

With its willingness to contemplate selective default and ambitious targets for raising cash from the private sector, the European Commission proposal seems to be intended to appeal to Germany, which has consistently called for banks to take a substantial part of the loss.

Germany, Finland and the Netherlands are at odds with the European Central Bank and some governments over their insistence that private bondholders share the pain. Besides concerns over contagion, the central bank has said that a selective default would make it impossible to accept Greek bonds as collateral. That may require measures to ensure that liquidity still flows to Greek banks, the official said.

Officials said it was unclear whether the plan floated by the commission would be accepted by Berlin and Paris and other governments.

One element attracting consensus is the need to reduce the burden on indebted nations, not only by buying back Greek bonds but also through a reduction in the interest rates offered to Greece, Ireland and Portugal, which have also accepted international help. The maturities of these loans would also be extended.

The European Financial Stability Facility looks destined to gain a more important role, financing the buyback of bonds, and possibly the extension of credit lines or help in bank recapitalization.

“For the federal government, the participation of private investors is of immense value and is our aim,” Steffen Seibert, the German government spokesman said on Wednesday. “We are very confident that there will be a good and sensible solution,” he said in Berlin.

Economists said that a debt buyback would have other consequences.

If the program were voluntary, some investors might not participate, hoping that market prices for Greek debt would rise. So the buyback would have to be compulsory — a default, in other words — for Greece to get the debt reduction it needed, said Harald Benink, a professor of banking at Tilburg University in the Netherlands.

In addition, Greek banks would need to be bailed out because they have such large holdings of domestic debt. Portugal and Ireland might need a similar buyback deal to protect them from market attacks. The European Central Bank might need to be compensated for losses on its holdings of Greek debt.

And the European Union would have to substantially increase the size of the stability fund to show markets it is ready to protect Spain and Italy, Mr. Benink said.

“That requires a lot of political willingness and ability,” he said. “The worry is that these political leaders will have to drive at a much faster speed than their voters will allow them.”

Judy Dempsey reported from Berlin. Jack Ewing in Frankfurt and Matthew Saltmarsh in London contributed reporting.

This article has been revised to reflect the following correction:

Correction: July 22, 2011

An article on Thursday about efforts to negotiate a rescue plan for Greece paraphrased incorrectly, in some editions, from a statement by the French president, Nicolas Sarkozy, about the progress of talks. Mr. Sarkozy said that Germany and France had agreed on a plan to be presented to a summit meeting; he did not say that the plan would include the participation of Europe’s banking sector. The article also misspelled part of the surname of the president of the European Council, who received the agreement. He is Herman Van Rompuy, not Van Rumpuy.

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