January 10, 2012
THE leaders of Germany and France yesterday turned up the pressure on Greece and its international creditors, warning a loan backed by the European Union and the International Monetary Fund is on hold until Greece enacts budget overhauls and concludes talks on reducing its debt load.
German Chancellor Angela Merkel and French President Nicolas Sarkozy met to discuss progress on nailing down the details of a fiscal pact on closer economic policy alignment and a tougher regime of sanctions for eurozone countries that run excessive deficits and a high amount of public debt European leaders agreed on last month.
The meeting kicked off the next round in the battle to stem the eurozone debt crisis after European leaders failed last year to come up with robust solutions to end the Greek crisis and a widening sovereign debt problem in Europe that is threatening the global economy.
Both leaders stressed the need to boost European growth and competitiveness. But the talks were overshadowed by concerns in financial markets the Greek bailout was unravelling, driving the euro to a 16-month low and hitting global stockmarkets yesterday.
"The second Greece program has to be implemented soon; otherwise it won't be possible to disburse the next tranche," Ms Merkel said during a joint news conference with Mr Sarkozy after their meeting.
European leaders agreed last year on a €130 billion ($162bn) bailout for embattled Greece. Part of the deal includes a writedown of 50 per cent on some Greek bonds and a package of loans provided by the EU and the IMF, which are disbursed in tranches and are linked to the implementation of budget overhauls by the Athens government.
Greece is negotiating a deal with private sector creditors on the previously agreed 50 per cent writedown, but people familiar with the matter said even that amount of debt reduction is no longer sufficient because of the deteriorating Greek economy.
Analysts fear a Greek default could have incalculable consequences for the eurozone as a whole as the future of the currency is at stake.
"The situation is very strained, maybe more than ever before in the euro area," said Mr Sarkozy.
Ms Merkel said she will also discuss Greece with IMF President Christine Lagarde, who arrives in Berlin for talks with Ms Merkel and Finance Minister Wolfgang Schäuble today.
Ms Merkel and Ms Lagarde are likely to discuss the planned €200bn boost to IMF resources agreed at the EU summit last month. So far, Europe has failed to obtain specific commitments for about €50bn from countries outside the eurozone. The British, which is the only EU country to have rejected the planned European fiscal pact, has also rejected providing cash for the IMF to bailout the eurozone.
The Bundesbank, Germany's powerful central bank, has made the British contribution a condition for German involvement.
The meeting between Ms Merkel and Mr Sarkozy is the first of several meetings this month aimed at concluding by the end of March the details of a fiscal pact on closer economic policy alignment and a tougher regime of sanctions for eurozone countries that run excessive deficits and a high amount of public debt.
The pact came about in part because of Germany's insistence on using the current crisis to rewrite the rules of currency union, to make them tougher and impose budget discipline on profligate eurozone members.
"We are making good progress on the fiscal pact," Ms Merkel said. "There is a good chance that we will be able to sign agreements on the debt brake in January, or February at the latest."
Mr Sarkozy, who faces a tough election in May, was also pushing ahead of the meeting to stress the need for promoting economic growth and jobs, rather than belt tightening and austerity.
Ms Merkel seemed happy to accommodate her guest, agreeing to push a financial transaction tax if the entire 27-member EU agrees to it and stressing the need for boosting the European economy. Both growth and budget discipline are needed to boost the euro, she said. If the full EU failed to back the tax proposal, Ms Merkel said she would support introducing the tax in just the 17-nation eurozone.
But passage of any kind of tax proposal on financial transactions is far from certain.
The idea was immediately rejected by Ms Merkel's junior coalition partner, the pro-business Free Democrats, suggesting she is making a promise to Mr Sarkozy she will never have to keep.
"We want to make clear with a combination of solid finances and growth stimulus that we are not only committed to preserving the euro but that we also want a strong, modern and competitive Europe," said Ms Merkel.
Article by: William Boston From: The Wall Street Journal Additional reporting: Bernd Radowitz and Andrea Thomas