Thursday summit will not solve debt crisis: Angela Merkel
Published 19/07/2011 | 15:54
German chancellor Angela Merkel has poured cold water on growing expectations that the eurozone summit meeting on Thursday would provide a quick-fix solution to the continent’s debt crisis.
"Those who want to take political responsibility, and that's what the government wants and takes seriously, know that responsibly there won't be one spectacular step" this week, she said at a joint news conference with Russian president Dmitry Medvedev in Hanover.
"It's entirely about creating a controlled, composed process of gradual steps and measures."
Her comments came after it emerged a new tax on eurozone banks and loans to indebted countries with longer repayment dates are part of the European plan to save the debt-stricken continent.
According to a document obtained by news agency Reuters, these plans are also the least risky way to provide extra funding for Greece but it is not clear whether eurobonds could be issued to allow indebted countries easier access to open markets eventually.
The euro currency faces its biggest crisis in its 12-year history and fears of the debt contagion spreading from Greece and today sent Spanish financing costs surging at a bill auction.
French European Affairs Minister Jean Leonetti confirmed earlier this week that Euro officials were eying 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.
"It's one of the solutions we are looking at. It would have the advantage of not making us intervene directly with the banks and therefore potentially not triggering a default," he told reporters in Brussels.
The tax idea "deserved to be studied," he said.
It is understood a small levy on banks could yield €10bn a year in levies, raising the €30bn over three years targeted by Germany, which has led the drive for private sector involvement in a new Greek programme.
Earlier today, a European Central Bank (ECB) member has broken ranks and said a solution to Greece’s debt crisis could involve a "selective default" – the first time a central bank executive has gone against the ECB’s hard line on the issue.
The comments came from Ewald Nowotny, Austria's central bank governor, who warned that a full default would have grave consequences for Greece and the ECB’s ability to accept its debt as collateral for loans but a more organised default could work.
"There is ... a full range of options and definitions -- from a clear-cut default to selective default, to a credit event and so on," he told CNBC in an interview broadcast on Tuesday.
"This indeed has to be studied in a very serious way. There are some proposals that deal with a very short-lived selective default situation that would not really have major negative consequences," he added.
Mr Nowotny's stance leaves the chances of an agreement on European overall debt problems more realistic and come just hours after outgoing ECB President Jean-Claude Trichet, reiterated the ECB's monetary policy that even a selective default would be unacceptable.
The euro gained strength against the dollar on speculation that European officials could reach an agreement to halt contagion from the region’s debt crisis and signals that the ECB may now be willing to compromise on the use of Greek bonds as collateral after a default.
Greek Finance Minister Evangelos Venizelos said a resolution of the crisis is “attainable “.
A buy-back of Greek debt would do most to reduce Athens' debt mountain of €350bn but it would also be expensive.
The euro rose 0.6pc to $1.4202 in early trade today.
European shares edged up on Tuesday, in a slight rebound after a sharp fall in the previous session yesterday but investors remained cautious.