Merkel, Sarkozy warn Greece on debt

BERLIN -- German Chancellor Angela Merkel and French President Nicolas Sarkozy on Monday warned Greece that it needed to move forward with promised reforms or risk losing the next installment of badly needed bailout funds.

The leaders of the European Union's two largest countries met in the German capital to discuss their next steps in combating the sovereign-debt crisis that has destabilized the Continent and threatened the common currency.

Even as Ms. Merkel and Mr. Sarkozy promised quick action to stem the crisis, investors signaled the depth of their ongoing concern over the instability that has spread from Greece to the very heart of the eurozone by purchasing German debt at a negative real interest rate for the first time ever.

Speaking at a news conference after the two leaders met at the chancellery building, Mr. Sarkozy acknowledged the uncertainty in the markets, saying, "The situation is very tense, very tense."

There are increasing signs that Greece will fail to make the structural changes to its economy that its leaders have promised. Greece's prime minister, Lucas Papademos, warned last week that without deeper spending cuts a disorderly default was a possibility, and could result in Greece leaving the euro.

With an eye toward Athens, Mr. Sarkozy said, "Our Greek friends must live up to their commitments." Ms. Merkel said that if those commitments were not met by the Greek government, "it will not be possible to pay out" the next installment of the bailout money.

The holidays may have created a lull in the action, but the New Year promised to be just as hectic as the old for European leaders, and Ms. Merkel in particular. The International Monetary Fund chief, Christine Lagarde, arrives this evening for talks with the German chancellor. Italy's prime minister, Mario Monti, comes Wednesday to Berlin. Ms. Merkel and Mr. Sarkozy are scheduled to travel Jan. 20 to Rome for talks with the Italian government ahead of the next European Union summit Jan. 30 in Brussels.

A drumbeat of bad economic news lately has led many economists to predict the imminent return to recession for many of the countries that use the euro. At the same time, European countries and financial institutions need to raise roughly $2.4 trillion in 2012.

Asked whether she feared that ratings agencies would downgrade additional European countries and in the process further spook markets, Ms. Merkel replied coolly, "Fear does not motivate my political actions."

The gap between countries with sound finances and those such as Italy and Spain that are forced to pay high rates has widened to a chasm of 5 percentage points or more. Germany on Monday joined the likes of the Netherlands and Switzerland as perceived safe havens where customers of short-term debt are willing to lose money in return for shelter from upheaval and the possibility of even greater losses.

Ms. Merkel called the plan to stabilize the euro "an ambitious but attainable goal." She hit several familiar themes, stressing that there were no quick solutions to the euro crisis, and that Greece was an exception when it came to debt writedowns -- often known as a "haircut" -- for private investors. "Our intention is that no country must withdraw from the euro area," she said.

First published on January 10, 2012 at 12:00 am

Source: http://www.post-gazette.com/pg/12010/1202499-82.stm?cmpid=nationworld.xml

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