BRUSSELS—The leaders of France and Germany said on Sunday that they had made progress in settling their differences over a strategy to solve Europe’s debt crisis, but that the “mind-boggling technical complexity” of the task meant they needed a few more days to finalize their plans.
Negotiations are continuing between Paris and Berlin, the two heavyweights of the European Union (EU), over how best to increase the power of the EU’s $600-billion bailout fund and to reduce Greece’s staggering debt. Many analysts have warned that the debt crisis is fast approaching a make-or-break point.
A comprehensive solution had been expected to come out of Sunday’s gathering of the leaders of all 27 EU nations in the Belgian capital. But French President Nicolas Sarkozy and German Chancellor Angela Merkel said they would present their plan at a follow-up summit on Wednesday. “Things are forging ahead. We have yet to reach a final conclusion,” Sarkozy said at a news conference with Merkel. “We have to take all of the decisions at one and the same time.”
“The devil is in the details here,” Merkel said.
Despite their good-natured appearance together, the two leaders have been at odds over how to leverage the EU’s bailout fund, which can prop up small indebted nations such as Greece and Portugal, but is inadequate now that Spain and especially Italy are threatened.
Berlin favors turning the bailout mechanism into a sort of insurance fund, while Paris fears that being on the hook for extra guarantees could endanger its triple-A credit rating.
European officials also reported progress on another element of the plan to be revealed on Wednesday: the issue of recapitalizing the region’s biggest banks so they would be able to withstand steep losses from their exposure to Greek debt and from another recession.The EU is expected to demand that Europe’s banks raise an extra $140 billion in capital as a cushion against major shocks. The banks would try to get the money from commercial investors or, failing that, accept cash infusions from their home governments. As a last resort, the European bailout fund could pitch in.
Still to be settled is the question of just how big a loss private holders of Greek bonds, including the banks, should be forced to take for Athens’s debt to be brought down to a sustainable level. In July euro-zone leaders agreed on an average writedown of 21 percent, but that is no longer considered to be enough.
