German Chancellor Angela Merkel and French President Nicolas Sarkozy arrive for a press conference following a meeting at the Chancellery in Berlin today.
Germany and France warned Greece it will get no more bailout funds until it agrees with creditor banks on a bond swap and pressed for an early deal to avert a potential default in the euro zone’s most debt-stricken nation.
Chancellor Angela Merkel and President Nicolas Sarkozy, the euro zone’s two leading powers, insisted after talks in Berlin that private sector bondholders must share in reducing Greece’s debt burden, along with new European and IMF lending.
They rejected both a call by a European Central Bank policymaker to abandon plans to make private investors take losses, and a leaked International Monetary Fund memo that cast doubt on Athens’ ability to reform its public finances.
«We must see progress on the voluntary restructuring of Greek debt,» Merkel told a joint news conference. «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.»
Merkel and Sarkozy both voiced their determination to press ahead with a tax on financial transactions opposed by Britain, but they appeared to diverge on the timing.
Sarkozy, facing a strong left-wing challenge in his struggle for re-election in May, suggested France could go it alone and challenge other states to follow suit.
Merkel said all 27 EU finance ministers should report in March, and the 17-nation euro zone should move ahead if other countries continued to block an EU decision. But she acknowledged that she did not have full agreement on this within her centre-right coalition government.
A Greek government official said talks with private bondholders on a debt swap key to averting default were progressing but there was no deal yet. However, a senior insurance executive briefed on the negotiations said they were very difficult and likely to be unsuccessful.
The executive, who is not directly at the table, said roadblocks included whether a debt writedown would trigger credit default insurance or not, and how a sufficient number of creditors could be corralled into joining an agreement.
The only hedge fund on the steering committee representing private creditors, Madrid-based Vega Asset Management, walked out last month. French bank BNP Paribas, which has a strong interest in a deal given its large exposure to south European sovereign debt, said last week that agreement was near, but other banking sources are more skeptical.
Merkel’s tough comments highlighted growing concern among European governments that a potential collapse of the Greek rescue negotiations poses the most immediate threat of destabilizing the entire 17-nation euro currency and the global economy.
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