Germany, France Reach Deal On Euro Debt Crisis

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http://www.npr.org/2011/07/21/138569...ro-debt-crisis

July 21, 2011 Germany and France have overcome differences over how to combat the continent's debt crises ahead of what many in the markets are terming a make or break summit of EU leaders Thursday.

The leaders of the eurozone's biggest economies held last-ditch talks for seven hours in Berlin Wednesday amid mounting pressure to come up with a wide-ranging solution to Greece's debt problems and prevent the crisis spreading to much bigger economies such as Spain or Italy.

Despite indications earlier this week that a solution may not emerge, some sort of deal appears to have been thrashed out between German Chancellor Angela Merkel and French President Nicolas Sarkozy.

In a statement early Thursday, Sarkozy's office said the two "reached agreement on a common Franco-German position. Merkel's spokesman, Steffen Seibert, also confirmed an agreement, adding that the leaders also extensively discussed the situation with the European Central Bank President Jean-Claude Trichet and, over the phone, with EU President Herman Van Rompuy. Seibert did not provide details on the agreement either.

No further details were offered, though the hope in the markets is that Greece will be in line with a fresh loan to see it through the coming years and that some sort of mechanism on how to get the banks involved in the country's second bailout has been agreed on.

But the prime minister of Luxembourg said the deal was unlikely to include a tax on banks to help pay for the second rescue package.

"I have the impression that there is no agreement on a banking tax," Jean-Claude Juncker, who as the chairman of the Eurogroup is one of the key officials of the currency union, said as he arrived in Brussels.

Juncker conceded that the final deal could well see the agencies slapping a "selective default" rating on the country. That could trigger fresh financial turmoil, especially if the European Central Bank insists on cutting Greek banks from emergency support, as it threatened to do if the country is considered to be in default.

German public broadcaster ARD reported that Merkel and Sarkozy agreed upon how to structure private-sector involvement in the rescue package, details of which are expected to be circulated among EU leaders later.

Before the announcement, Germany had reined in expectations that anything "spectacular" would emerge at Thursday's emergency summit while France had pushed for a strong, long-term aid plan for Greece. The International Monetary Fund urged the EU to get a handle on the crisis or else face the consequences.