Merkel plays down chances of a full solution to Greek debt crisis
Tax on banks and cheaper loans most likely
Published 20/07/2011 | 05:00
German Chancellor Angela Merkel, Europe's reluctant paymaster, doused expectations of any comprehensive solution to Greece's debt crisis at an emergency eurozone summit tomorrow.
"Further steps will be necessary and not just one spectacular event which solves everything," Ms Merkel told a joint news conference yesterday with visiting Russian President Dmitry Medvedev.
The widespread longing for a single, final solution to make the Greek crisis disappear once and for all was unrealistic, she said, as officials wrestled with complex options for involving private bondholders in a second financial rescue for the debt-stricken eurozone state.
The euro eased against the dollar after the German leader said too high demands had been placed on tomorrow's talks, which are only part of an incremental series of steps to address Greece's debt and competitiveness problems.
A confidential eurozone paper drafted ahead of the 17-nation summit showed a tax on banks and cheaper, longer-dated official loans would be the least risky way to provide extra funding for debt-stricken Greece.
With financial markets on edge before the crucial meeting, other options for private-sector involvement that could trigger a selective or outright Greek default with far-reaching consequences remain on the table, the paper showed.
Banking sources said they expected leaders to agree on a range of possibilities for private bondholders to contribute, rather than a single option.
The Government here at home is hoping that French President Nicolas Sarkozy's objections to a cut in Ireland's bailout interest rate will be overruled by a wider deal on the EU debt crisis.
Taoiseach Enda Kenny travels to a special EU summit tomorrow where a solution to the euro crisis will be debated.
In the long-running saga on the interest rate, behind-the-scenes talks between Ireland and France are continuing to try to reach agreement on the reduction.
France still wants Ireland to increase its corporation tax in return for the cut. Mr Sarkozy's demand has held up the promised cut for four months
However, an overall deal on the debt crisis would mean an automatic reduction -- thereby bypassing the French blockage of the interest rate cut.
"The hope will be they become irrelevant," a government source said.
Mr Kenny said the meeting was important and he hoped the outcome would "start to restore confidence in the markets in a number of countries".
French European Affairs Minister Jean Leonetti confirmed late on Monday that eurozone officials were eyeing a bank tax to raise extra money to help Greece, which needs a further €115bn in funding by mid-2014 on top of a €110bn EU/IMF bailout agreed last year.
The French and German banking federations protested against the idea, saying it was the wrong approach to help Greece.
A source familiar with the talks said a small levy on banks could raise €10bn a year, yielding the €30bn over three years targeted by Germany, which has led the drive for private sector involvement in a new Greek programme.