No breakthrough in debt crisis, warns Schaeuble
European and US stocks fall as optimism drains from the global market
Published 18/10/2011 | 05:00
GERMANY'S finance minister has warned that Sunday's EU leaders' summit will not end the debt crisis.
The euro fell against the dollar and shares fell after the comments from German Finance Minister Wolfgang Schaeuble.
Speaking in Germany, Mr Schaeuble warned that expectations of a definitive breakthrough have run ahead of reality.
"We won't have a definitive solution this weekend," he said.
That view was backed by Steffan Seibert, a spokesman for Germany's Chancellor Angela Merkel, who also moved yesterday to dampen expectations among investors that an end to the 18-month crisis is close.
Mr Schaeuble said a five-point platform to address the turmoil would be put forward this weekend, but did not elaborate on the detail of the proposal.
Markets had traded up in the past week on growing hopes that a meeting of European heads of government on October 23 would be the forum for a comprehensive new strategy to end the 18-month debt crisis.
French and German leaders said last week that they were preparing a plan to be unveiled at the summit.
Markets fell yesterday, with the Dow down 1.9pc in late trading, after the German finance minister moved to manage expectations about how comprehensive the plan would be.
A less comprehensive plan is expected to include details on recapitalising European banks to make them less vulnerable to the fallout from a Greek default.
Leaders could also agree to allow the European bailout funds to borrow in the markets and thereby increase the €500bn available to tackle the debt crisis.
More contentious will be any move to renegotiate a deal to reduce Greek government debt by 21pc that was agreed between European officials and representatives of the bank sector in July.
Tension on that Greek cut is understood to be the main block to a breakthrough deal.
Mr Schaeuble wants the Greek cut to go deep -- with banks to lose as much as 50pc of their investment. France and the European Central Bank favour a less dramatic cut.
The French Prime Minister Francois Fillon said growth in Europe depended on Greece and the bank sector avoiding failure.
"If we can be convincing that Greece won't fail, and we won't let it, and if we can be convincing that we won't let banks fail, and we won't because governments will show solidarity, then we will see growth in 2012," Mr Fillon said in an interview on French television.
It means that the three key negotiators have barely shifted position since July -- when Germany favoured the 21pc cut that France and the ECB tried to block.
Yesterday the euro fell 1pc against the dollar, dropping from a one-month high earlier in the day. European and US stocks also fell, as optimism drained from the global markets.
Germany's Dax share index closed down 1.8pc, with the French CAC down 1.6pc and the Dow Jones US index off 1.6pc. (Additional reporting Reuters)