Merkozy Upbeat Despite Return of Euro Crisis

Spiegel
January 9, 2012

Angela Merkel and Nicolas Sarkozy have once again shown a common front in the euro crisis, insisting that the euro zone is well on track to agreeing on binding debt rules, and papering over differences on the financial transaction tax. Merkel also said Greece must speed up debt restructuring talks -- or the next aid tranche won't be paid out.

As the euro weakened to its lowest levels since September 2010 on fresh fears about Greece, German Chancellor Angela Merkel warned on Monday that Greece won't get its next aid tranche unless it speeds up its debt restructuring.

"We must see progress on the voluntary restructuring of Greek debt," Merkel told a joint news conference with French President Nicolas Sarkozy in Berlin after a meeting between the two leaders. "From our point of view, the second Greek aid package including this restructuring must be in place quickly. Otherwise it won't be possible to pay out the next tranche for Greece."

Private sector creditors have been negotiating with the Greek government for weeks on a bond swap scheme to cut its debt-to-GDP ratio to 120 percent from 160 percent. Under the plan, private creditors are being asked to accept a voluntary 50 percent haircut on their Greek bond holdings in return for cash and new bonds.

The private sector involvement is a key part of a new €130 billion ($165 billion) bailout package that needs to be in place by March to ensure Greece does not default on its debt.

The finance policy spokesman of the opposition Green Party in the German parliament, Gerhard Schick, told the Berlin daily Tagesspiegel on Monday that the planned debt forgiveness of 50 percent "probably won't be enough."

If the private creditors can't be persuaded to forego a higher share of their bonds, public creditors including German taxpayers will have to make a bigger contribution, he said. "It is becoming evident that the plans made so far won't suffice to solve Greece's problem over the long term," said Schick.

Delegates from the so-called troika comprised of the European Commission, the European Central Bank and the International Monetary Fund will return to Greece on Jan. 16 to assess the country's progress on budget cuts and reforms it pledged in return for international aid.

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