Euro crisis: German, French, IMF, ECB leaders meet

AP News
Posted: Oct 19, 2011 1:21 PM
Euro crisis: German, French, IMF, ECB leaders meet

The leaders of Germany, France, the IMF and European Central Bank are working Wednesday to prepare for a crucial European summit that markets worldwide hope will save the 17-nation euro currency and find a solution to the region's deepening debt crisis.

The last-minute meeting in Frankfurt comes amid mounting pressure on European leaders to shore up their banks, slash debts and halt market volatility with a comprehensive, dramatic plan at the EU summit Sunday.

Expectations are fluctuating wildly, as are financial markets, amid reports about the scope of the plan.

Retiring European Central Bank President Jean-Claude Trichet said the eurozone's debt crisis requires "immediate action" in coming days and defended the euro as a bulwark against inflation that benefits average people.

At an event marking Trichet's retirement, German Chancellor Angela Merkel repeated her warning that "if the euro fails, then Europe fails. But we will not let that happen."

She said the summit on Sunday "will not be the end point of regaining trust. It will be a point at which we act, but much more will follow."

French President Nicolas Sarkozy arrived in Frankfurt on Wednesday night for what a French official called an "informal working meeting" with Merkel, IMF chief Christine Lagarde, incoming ECB chief Mario Draghi, EU President Herman Van Rompuy and European Commission President Jose Manuel Barroso. The official spoke on condition of anonymity in keeping with presidential policy.

Sarkozy had earlier told a Cabinet meeting that the summit in Brussels "is a crucial moment, for Europe and for France," government spokeswoman Valerie Pecresse said.

Eurozone officials are trying to contain a crisis over too much debt in some countries, and consequent fears that a country might default and cripple banks who hold its bonds.

A poetry fan, Trichet quoted the German writer Goethe, saying: "To know is not enough. To intend is not enough. We must do it!"

"I think this applies admirably to the sense of action which should inspire Europe in coming days," he said.

Earlier this week, German finance chief Wolfgang Schaeuble said the measures to be announced Sunday would not mark the end of the eurozone debt crisis and that some parts may need more time to be ironed out.

The hope has been that eurozone governments are preparing a three-pronged solution to the debt crisis _ measures to boost the firepower of their fund to bail out weak states, a recapitalization of a large part of the banking sector, and a plan to get banks to take a bigger hit on their Greek debt holdings.

France and Germany disagree on the last point. Germany is pushing for banks to accept cuts of 50 percent to 60 percent on their Greek bondholdings, while France is insisting that only technical revisions should be made to a preliminary agreement reached with private investors in July. That deal called for a 21 percent loss on the bonds.

Markets recovered after The Guardian newspaper reported that France and Germany were putting the finishing touches on a massive expansion of the bailout fund, possibly to euro3 trillion ($4.1 trillion) from the current euro440 billion.

German Finance Ministry spokesman Martin Kotthaus, however, said there was no agreement yet in the eurozone on how to boost the lending capacities of the bailout fund _ the European Financial and Stability Facility, or EFSF _ beyond the euro440 billion it has available.

Expanding the bailout fund is not an option, but the aim is to maximize the possible impact of the committed funds, he said.

"The question is: how can we maximize the efficiency of those euro440 billion?" he said.

Kotthaus described as inaccurate media reports that Schaeuble had suggested Berlin was prepared to use an insurance model to boost the lending capacity to euro1 trillion. If Schaeuble used the euro1 trillion figure in a briefing with lawmakers, he may have used it only as an example to illustrate how the idea of leveraging the EFSF could work, he added.

"We have extremely intense discussions, conferences and telephone conferences" to prepare this weekend's summit, he said. "We are still in the middle of the discussions. We are working under high pressure. We will certainly have a solution in the coming days."


Corbet contributed from Paris. Associated Press writer Juergen Baetz in Berlin contributed to this report.