France, Germany report progress on European debt crisis strategy
REPORTING FROM BRUSSELS — The leaders of France and Germany said Sunday that they had made progress in bridging their differences over a wide-ranging strategy to combat Europe’s debt crisis but that the “mind-boggling technical complexity” of the task meant they needed a few more days to finalize their plans.
Intensive negotiations are continuing between Paris and Berlin, the two heavyweights of the European Union, over how best to increase the firepower of the EU’s $600-billion bailout fund and to reduce Greece’s staggering debt burden, the crux of the current turmoil. The talks come amid warnings from many analysts that the region’s spiraling debt crisis is fast approaching a make-or-break point.
A comprehensive solution had originally been expected to come out of Sunday’s gathering of the leaders of all 27 EU nations in the Belgian capital. But French President Nicolas Sarkozy and German Chancellor Angela Merkel said they would present their plan at a follow-up summit Wednesday.
“Things are forging ahead. We have yet to reach a final conclusion,” Sarkozy told reporters at a joint news conference with Merkel. “We have to take all of the decisions at one and the same time.”
“The devil is in the details here,” Merkel added.
Despite their good-natured appearance together, the two leaders have been at odds over the best way to leverage the EU’s bailout fund, which was capable of propping up small indebted nations such as Greece and Portugal but is painfully inadequate now that the big economies of Spain and especially Italy have been sucked toward the center of the crisis.
Berlin favors turning the bailout mechanism into a sort of insurance fund, while Paris fears that being on the hook for extra guarantees could endanger its cherished triple-A credit rating.
European officials also reported progress on another element of the multipronged plan to be unveiled Wednesday: the issue of recapitalizing the region’s biggest banks so that they would be able to withstand steep losses from their exposure to Greek debt and from a possible "double-dip" recession.
The EU is expected to demand that Europe’s banks raise an extra $140 billion in capital as a cushion against major shocks. The banks would try to drum up the funds from commercial investors or, failing that, accept cash infusions from their home governments. As a last resort, the European bailout fund could pitch in.
Still to be settled is the question of just how big a loss private holders of Greek bonds, including the banks, should be forced to take in order for Athens’ debt to be brought down to a sustainable level. In July, Eurozone leaders agreed on an average writedown of 21%, but that is no longer deemed sufficient.
Analysts warn that Wednesday’s “grand plan” must address all three issues. Failure to do so, they say, could throw global markets into even more turmoil and ignite a financial and economic crisis akin to the one that erupted in 2008.
— Henry Chu
Photo: German Chancellor Angela Merkel and French President Nicolas Sarkozy at a joint news conference Sunday promised a detailed plan on how to deal with Greece's debt crisis on Wednesday. Credit: Michel Euler / Associated Press