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Germany, France reach accord on debt crisis

Greece summit begins with all options on table

By Angela Charlton and Juergen Baetz
Associated Press / July 21, 2011

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PARIS - Germany and France have overcome differences over how to combat the continent’s spreading debt crises and agreed on a common position ahead of an emergency European summit today, the French president’s office said.

The leaders of the eurozone’s biggest economies held last-ditch talks for seven hours in Berlin late yesterday, amid pressure for a big announcement that could boost market confidence and contain the turmoil.

German Chancellor Angela Merkel and French President Nicolas Sarkozy “reached agreement on a common Franco-German position,’’ Sarkozy’s office said in a statement early today, without elaborating on what the position is.

Germany had downplayed calls for anything “spectacular’’ while France had pushed for a strong, long-term aid plan for Greece at today’s summit in Brussels.

The stakes are high. Markets have been extremely volatile over the past weeks on fears the crisis might spread to larger countries like Italy. The International Monetary Fund warned that leaders must do more to keep debt troubles from poisoning the entire continent’s economy.

Merkel and Sarkozy met with European Central Bank chief Jean-Claude Trichet yesterday as they worked toward a plan. They told EU President Herman Van Rompuy about their agreement so that he can take it into account in his consultations ahead of meetings, expected to start midday in Brussels, the French statement said.

Merkel’s spokesman Steffen Seibert had said the leaders would discuss “all the options on the table and agree, if possible, on a joint position.’’ But he reiterated Merkel’s stance that the talks will not yield quick fixes to Greece’s problems, but will be merely a stepping stone in a longer process. Merkel had said there would be no decision to restructure Greece’s debt or create eurobonds that link debt across countries.

The French government and the European Commission, however, warned that it was urgent that the EU come up with a significant deal.

European leaders have faced criticism for their piecemeal efforts to stem the debt crisis.

So far, discussions on the contribution of private creditors have revolved around three options, according to a paper from a eurozone officials’ working group dated July 16:

■ The first would see the eurozone’s bailout fund finance a buyback of Greek government bonds at their current distressed prices, paired with guarantees that the remaining bonds would be repaid.

■ The second option reverts to a proposal made by French banks several weeks ago. Banks would reinvest part of the money they collect from maturing Greek bonds into new bonds with long repayment deadlines.

■ The third option is the only one that would avoid a default rating, but will likely run into huge opposition from banks that don’t hold Greek bonds. It proposes a tax on the financial sector to recoup part of the cost of rescuing Greece.