Report: Merkel, Sarkozy finding common ground on Greek debt

Oct 9, 2011, 0:10 GMT

Berlin - German Chancellor Angela Merkel and French President Nicolas Sarkozy were approaching a possible compromise on a write-down of Greek debt, ahead of talks between the two leaders Sunday in Berlin.

Germany appeared willing to grant French demands for greater flexibility in the funding of the European Financial Stability Facility (EFSF) bailout mechanism, in return for a write-down of Greek debt, Welt am Sonntag newspaper wrote in an article to be published Sunday.

Until now, France has rejected German demands for a haircut on Greek bonds, many of which are held by French banks.

The newspaper reported that Sarkozy was willing to reconsider, if Germany agreed to grant the EFSF access to European Central Bank (ECB) funds, a position that Berlin has so far rejected.

Merkel and Sarkozy are due to meet in Berlin, officially to discuss an upcoming European Union summit and a special meeting of eurozone leaders in Brussels. However, the meeting was expected to be dominated by bank rescue plans, amid the ongoing eurozone debt crisis.

Sarkozy met Saturday in Paris with International Monetary Fund (IMF) chief Christine Lagarde, a former French finance minister, in talks designed to prepare for the next Group of 20 summit in early November. No details of their discussion were made public.

France and Germany are the political and economic engines of the common currency bloc and are widely expected to put forward new proposals to contain the debt crisis and prevent a banking crisis.

Paris holds the rotating presidency of the G20, which is due to discuss changes to the international financial system next month in Cannes, France.

German Finance Minister Wolfgang Schaeuble warned in a report published Sunday that Greece may be unable to service its debts in the long term, despite the latest set of Greek bailout measures agreed during the summer in Brussels.

'Maybe the percentage of (Greek) debt reduction we worked with in July was too low,' Schaeuble told German newspaper Frankfurter Allgemeine Sonntagszeitung.

'There is a high risk that this crisis will grow more acute and spread further.'

His comments came as inspectors from the European Commission, the European Central Bank and the IMF warned that the bailout measures agreed for Greece could fail unless Athens introduces stricter structural reforms.

'Greece stands at a crossroads. It is clear that the (rescue) programme will not succeed if the authorities do not take the path that entails far stricter structural reforms than the ones we have seen so far,' Poul Thomsen, the IMF representative of the so-called 'troika' delegation, told Welt am Sonntag.

Economic weekly Wirtschaftswoche published comments on its website by World Bank President Robert Zoellick, who reportedly told the magazine that political 'bumbling' was failing to soothe markets.

He warned that Europe was lacking the kind of vision that former German chancellor Helmut Kohl provided when the communist bloc crumbled.

'This is now missing entirely, and the longer this lasts, the more money it will cost and the fewer courses of action will be available,' Zoellick was quoted by the paper, in remarks interpreted as a direct attack on Merkel.

'The key question is whether people and governments in Europe want to establish a political and financial union to complement the currency union.'