March 12, 2014
Germany pours cold water on EU summit hopes
Pessimistic comments from EU paymaster Germany and new figures exposing deepening stress among Europe's banks dented financial market hopes of a turning point in the euro zone's debt crisis at a summit this week.
President Nicolas Sarkozy and Chancellor Angela Merkel detailed their plan to amend the EU treaty to anchor stricter budget discipline in the euro area in a letter to European Council President Herman Van Rompuy on Wednesday.
The French finance minister said the leaders of France and Germany would not leave Friday's European Union summit until a "powerful" deal is reached to restore market trust and prevent the sovereign debt crisis spiraling out of control.
But while Paris voiced determination, a senior German official gave a downbeat assessment of prospects for an agreement in an apparent effort to jolt partners into accepting Berlin's terms and respecting its red lines.
"I have to say today, on Wednesday, that I am more pessimistic than last week about reaching an overall deal ... A lot of protagonists still have not understood how serious the situation is," the official told a pre-summit briefing.
"My pessimism stems from the overall picture that I see at this point, in which institutions and member states will have to move on many points to make possible the new treaty rules that we are aiming for," he said, speaking on condition of anonymity.
The euro slipped, share prices turned negative and safe-haven German bond futures rose after the official punctured investors' hopes of a crisis solution, although some diplomats played down his comments as pre-summit brinkmanship.
After several days of recovery, Italian and Spanish bond yields rose sharply as money fled the two most endangered euro zone sovereigns for the relative safe haven of the region's strongest sovereign, Germany.
US Treasury Secretary Timothy Geithner, whose fourth trip to Europe in as many months speaks of the alarm in Washington at the damage the debt crisis could wreak on the US economy, backed the Franco-German plan to impose mandatory penalties on euro states that exceed deficit targets.
Geithner underlined the European Central Bank' central role in fighting the crisis, speaking again to ECB President Mario Draghi by telephone just a day after they met in Frankfurt.
"I have a lot of confidence in what the president of France and the minister are doing, working with Germany to build a stronger Europe," Geithner told reporters after breakfast talks with French Finance Minister Francois Baroin.
"Neither Nicolas Sarkozy nor Angela Merkel will leave the negotiating table of this summit until there is a powerful deal," Baroin told Canal+ television.
Euro zone sources said the ECB was closely involved in discussing plans for tighter euro zone fiscal and economic integration ahead of the summit, and Draghi would meet Merkel and Sarkozy in Brussels on Thursday evening.
Draghi signaled last week that a euro zone "fiscal compact" could enable the ECB to act more forcefully. The sources said he wanted a firm commitment set in stone that euro zone countries were moving towards a fiscal union before stepping up crisis-fighting measures.