Merkel: EU summit won't yield quick crisis fix

July 19, 2011 - 4:15 PM
Germany Russia

German Chancellor Angela Merkel smiles during the signing of economic contracts between Russia and Germany at a meeting of the German and Russian governments in Hannover, northern Germany, on Tuesday, July 19, 2011. (AP Photo/Matthias Schrader)

HANNOVER, Germany (AP) — German Chancellor Angela Merkel dashed hopes Tuesday that the upcoming European Union summit on Greece would yield a quick and comprehensive solution to deal with the debt crisis.

There won't be anything as "spectacular" as a restructuring of Greece's debt or an agreement on eurobonds at Thursday's summit in Brussels, the leader of Europe's biggest economy said.

Instead, the summit must yield an agreement on a "controlled process of successive steps ... aiming at finally getting to the cause of the problem: The issue of reducing Greece's debt and the issue of raising its competitiveness."

Merkel, speaking in the northern German city Hannover alongside visiting Russian President Dmitry Medvedev, added it is understandable that people desire a quick solution "following over a year of debate and decisions."

"But who politically fosters that desire has not understood the dimension and the tasks we are facing," Merkel said. Those who promise such a quick solution are either careless or have lost patience, she added. "Either way, that is not good."

Merkel insisted that tackling the debt crisis was a "historical task" because Europe could no longer be conceived without the euro, which is currently used by more than 300 million people in 17 of the bloc's 27 nations.

Russia's president noted that a sizable share of Russia's trade and currency reserves were now euro-denominated, but Medvedev added that he is "optimistic" that Europe will tackle the crisis.

EU leaders will meet Thursday in Brussels to discuss another bailout package for Greece, which already received emergency loans of more than euro110 billion ($156 billion) last year.

President Barack Obama spoke with Merkel by telephone on Tuesday about the euro zone crisis in advance of the Brussels meeting, and they agreed that dealing effectively with the crisis is important for sustaining the economic recovery in Europe as well as for the global economy, the White House said in a statement.

Obama also congratulated the chancellor on Germany's success in hosting this year's Women's World Cup and making it a memorable experience for players and fans alike. Japan's triumphant women's team, which defeated the U.S. in the final, returned home to a hero's welcome Tuesday in a country recovering from a deadly earthquake and tsunami and the world's worst nuclear disaster since Chernobyl.

Greece's finance minister has claimed that a European debt deal at Thursday's meeting in Brussels is "attainable," saying he believes European governments and private bond holders would be able to draw up a new rescue deal for his ailing country by then.

"Reaching a solution is attainable because this solution does not only include Greece," Evangelos Venizelos told The Associated Press in an interview late Monday. "At issue is the euro and the resilience of the eurozone. That is why protection of Greece is a self defense mechanism for the eurozone. That will help us avoid a domino effect."

Greece is enacting major economic reforms alongside an austerity program as it grapples with a national debt topping euro340 billion ($477.5 billion) that has brought it to the brink of default.

Merkel has insisted Greece's private creditors should share part of the burden of the next bailout through a "voluntary" contribution, but she and the European Central Bank have opposed forcing losses upon creditors.

Some analysts say a forced restructuring could rattle financial markets and lead to contagion, possibly forcing defaults in Portugal and Ireland, which also have received an emergency loan package by the EU, the ECB and the International Monetary Fund.

However, other economists and leaders across Europe argue that Greece's debt burden has reached such an unsustainable level that the country cannot repay what it owes.

In sharp contrast to Merkel's reluctance toward a debt restructuring, five economists making up her government's independent top economic advisory body called on the EU summit to come up with "a plan B" for Greece because "plan A" of repeated bailouts has a "high probability" of failing, possibly leading to an "unlimited bailout or an uncontrolled eurozone break up."

"The aim must be a haircut on outstanding bonds of about 50 percent. That would reduce the overall debt burden from about 160 percent (of the country's economic output) to about 106 percent," the economists wrote in an article in the German daily Frankfurter Allgemeine Zeitung to be published Wednesday.

With rating agencies set to consider Greece as a default, Europe's overall bailout fund, the EFSF, must guarantee the remaining debt, and the bloc will have to recapitalize some banks, but a coordinated effort will avoid contagion to other eurozone countries, they said.

It marked the first time that Beatrice Weder di Mauro, Wolfgang Franz, Christoph M. Schmidt, Peter Bofinger and Lars P. Feld — who often disagree on policy issues — have given a joint opinion on the eurozone's debt crisis.

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Derek Gatopoulos and Nicholas Paphitis in Athens contributed reporting.