BERLIN, July 21, 2011 (KATAKAMI.COM / THE TELEGRAPH) — The German chancellor and the French president were barraged with pleas from political and financial leaders to reach agreement on bailing out Greece – or risk the collapse of the single currency, The Telegraph reported on Wednesday.
The leaders have been told that today’s crucial summit in Brussels was the “last chance saloon” for the euro project.
Mr Sarkozy decided to travel to Berlin after the pair repeatedly failed to agree on how to get private bondholders to share the costs of a new €115bn (£101bn) bail-out for Greece.
Jose Manuel Barroso, the president of the European Commission, said: “Nobody should be under any illusion: the situation is very serious. It requires a response. Otherwise the negative consequences will be felt in all the corners of Europe and beyond.”
In a rare outburst, Mr Barroso, accused the leaders of endangering “a strong single market and a strong euro”.
“That is what is at stake. That is why we must provide a solution tomorrow. I believe now is the time to decide,” he said. “Leaders need to come to the table saying what they can do and what they want to do and what they will do. Not what they can’t do and won’t do.”
Mr Barroso rounded on Germany, France and the European Central Bank (ECB), blaming them all for obstructing a deal on the “feasibility and limits” of private sector involvement in a second Greek bail-out. He criticised Germany for blocking “scope for more flexible action” through the European Financial Stability Facility (EFSF), France for holding up “repair of the banking sector” and the ECB for failing “to ensure the provision of liquidity to our banking system”.
Jyrki Katainen, Finland’s prime minister, said: “We are trying to avoid a total catastrophe, that is, Greece’s insolvency which would most likely be highly contagious.”
Meanwhile, George Papandreou, the Greek prime minister, called the summit “a make-or-break moment.”
Last night tensions over the European sovereign debt crisis reached fever pitch as:
• A crucial meeting of “eurozone sherpas” – senior officials from all 17 finance ministries – was cancelled pending a possible agreement between Ms Merkel and Mr Sarkozy. The meeting, designed to thrash out details of a fresh Greek bail-out, has been pencilled in for this morning, before the summit begins at lunchtime.
• A group of leading economists wrote an open letter to European leaders warning: “For the first time, the very survival of the euro is at stake.” The 12 economists, including Richard Portes from the London Business School, called for the expansion of the EFSF and for permission for the fund to operate in secondary bond markets. They said: “The important thing is to acknowledge that leaders are out of time. Deciding to not decide could mark the end of the Eurozone as we know it.”
• Yields on lower-rated eurozone debt fell for the second day running in the hope that European leaders can agree a fresh bail-out for Greece’s debt burden and find a way to prevent the crisis from spreading. One trader said: “It might be wishful thinking – but the alternative is unthinkable.”
In an attempt to assuage the rising panic across Europe, Alain Juppe, the French foreign minister, said that Mr Sarkozy and Ms Merkel’s meeting was a good sign and he was “sure we will find an accord”. He insisted that “there is a very broad convergence of views” among euro-zone countries.
Steffen Seibert, the German government spokesman, said Ms Merkel and Mr Sarkozy knew the stakes were high. He said the pair were not intending to dictate terms to the other 15 eurozone countries, but admitted that “if France and Germany cannot agree, Europe does not move forward”.
While Germany wants private bondholders to take a “haircut”, France and the ECB are determined to avoid any credit event that could be seen as a default. The possible compromises, contained in a leaked document, include imposing a tax on eurozone banks; a vast debt swap in which investors would roll over their current bonds for new longer-term maturities; and an expansion of the EFSF.
Sharon Bowles, MEP, said: “The leaders must change tack from the squabbling and mixed messages … the summit is the last chance saloon before problems become even greater.” (*)