Another delay and another summit…
France and Germany say a comprehensive solution to the eurozone crisis will be announced no later than Wednesday, rather than at an EU summit on Sunday as initially hoped.
One of the ways leaders are looking at easing the crisis and preventing contagion is by boosting the resources of the eurozone bailout fund, the EFSF.
But France and Germany have different ideas on how to do this. Paul Taylor is Reuters’ Europe editor.
“The French think the only way you can do it sensibly is to involve the European Central Bank. Both Germany and the European Central Bank say that’s politically illegitimate – that essentially it’s getting the central bank into dangerous territory of financing governments, which they are not supposed to do. So that is a fundamental difference.”
Another point of contention between the two countries is the extent of the write-down that banks exposed to Greek debt might be asked to take.
“The French banks are much more exposed to Greece and to other peripheral countries, compared with the German banks. And so a larger haircut will have a disproportionate impact on the French banks. The French have been pressing for 30% and the German’s up to 60%. So it’s likely that you’ll get some sort of compromise which is perhaps in the 40% to 50% range.”
A statement by German Chancellor, Angela Merkel and French President, Nicolas Sarkozy, said an ambitious global response would be forthcoming. The proposals under consideration will be studied in detail on Sunday, and then definitively adopted on Wednesday.
The rest of the world is watching anxiously for an outcome, as the crisis has the potential to threaten the global economy.
Bottom line: As the world looks to Europe to solve the eurozone crisis, European leaders say decisions will be made by Wednesday at the latest, rather than at Sunday’s summit as hoped.