German Chancellor Angela Merkel and French President Nicolas Sarkozy met in Berlin to discuss ways to staunch the European debt crisis threatening to engulf the region’s banks.
Merkel and Sarkozy may be nearing a compromise on a possible Greek debt restructuring, greater flexibility for the European bailout fund and recapitalising European banks, Welt am Sonntag newspaper reported, citing unidentified negotiators involved in the talks. The two leaders are scheduled to give a press conference at the Federal Chancellery at 5.30 pm.
At their eighth bilateral summit in 20 months, the German chancellor and French president will attempt to forge a consensus on how to grapple with the crisis as it sends the euro to its lowest level against the US dollar since January. Any compromise could still be foiled as the Slovak government struggles to overcome differences to approve enhancements to the EFSF.
Merkel may be more willing to accede to French proposals to increase the flexibility of the EFSF in return for greater scope for a Greek debt restructuring, Welt reported. European Union leaders will also formulate a bank-recapitalisation plan for the region in time for an EU summit scheduled for October 17 and 18, the newspaper said.
GREEK HAIRCUT
Euro-area finance ministers are discussing a Greek debt haircut of as much as 60 per cent, Deutsche Presse-Agentur reported today, citing unidentified officials familiar with the negotiations.
Investors are demanding a premium of 21.5 percentage points to hold Greek 10-year bonds over benchmark German bunds of similar maturity. The euro has declined six per cent against the dollar since the beginning of September as investors assessed the risk of a European financial crisis. It traded at 1.3378, down from a May 2 high of 1.4830, as of October 7.
BNP Paribas SA, France’s largest bank, and Societe Generale SA denied a report in today’s Le Journal du Dimanche that they may seek to raise billions of euros to shore up their capital as part of a Europe-wide plan. The newspaper also reported that Merkel and Sarkozy will seek to reassure markets by setting up a timeframe for banks to reach equity goals in coming weeks.
More From This Section
A BNP Paribas spokeswoman, Carine Lauru, said today the bank planned to reach a Tier 1 capital ratio of nine per cent under Basel III rules by the start of 2013 without a capital increase.
Germany’s Deutsche Bank AG on Octokber 4 scrapped its profit forecast and announced 500 job cuts and further writedowns on Greek bond holdings, while the board of French-Belgian bank Dexia SA is meeting at 3 pm in Brussels today to study options to dismantle the lender.
EFSF ROADBLOCK
Slovakia’s junior government coalition member, the Freedom and Solidarity party, won’t back the overhaul of the EFSF after Prime Minister Iveta Radicova rejected its conditions for approval, according to a lawmaker from the party, Jozef Kollar. The party insists its three coalition partners agree to two conditions before it supports the enhancement in a parliamentary vote October 11, Kollar said in a debate on state Slovak Radio yesterday.
Slovakia and Malta are the only countries that haven’t yet ratified the key element in the European Union’s plan to prevent the region’s debt crisis from spreading. The Slovak row risks sinking the EU plan, which needs the unanimous consent of all 17 euro members to come into force.