17th Apr 2021

Merkel lowers summit expectations

With officials working around the clock on the terms of a second bailout for Greece, German chancellor Angela Merkel has played down expectations that a wide-ranging deal will be reached at an emergency summit on Thursday (21 July).

"Further steps will be necessary and not just one spectacular event which solves everything," she said at a press conference in Hannover on Tuesday.

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Her bid to play down expectations came as others sought to emphasize the importance of the eurozone leader summit and of the EU finding a solution to its debt crisis, which has recently looked in danger of spreading to Italy and Spain.

US president Barack Obama spoke by phone to the chancellor on Tuesday, later issuing a statement emphasizing the importance to the global economy of "dealing effectively" with the crisis.

The International Monetary Fund, whose chief Christine Lagarde will attend Thursday's summit, also underlined the potential global impact of not reaching a quick solution.

"Delays in resolving the crisis could be costly for the euro area and the global economy," it said in a report.

Discussions on a second loan to Greece, expected to be around €115bn, are focussing on trying to square German-led demands that the private sector be involved with the European Central Bank's adamancy that a solution should not result in a full or selective default.

One option being considered is a bank tax to help raise money for Greece. A small levy on the banks could raise €10bn a year, with Germany pushing to see €30bn funded by the private bondholders.

A eurozone discussion paper, obtained by news agency Reuters, indicates that the bank levy is the proposal least likely to cause default.

Meanwhile, Financial Times Deutschland reports that the summit may discuss a preventative role for the eurozone's rescue fund, the European Financial Stability Facility.

An option being considered is whether the fund should offer a flexible line of credit, like that offered by the IMF, so countries could have an aid line before becoming longterm aid recipients such as now is the case with Greece, Portugal and Ireland.

The paper says another option is that the EFSF guarantee bonds so that a state could avoid paying much higher interest rates.

Both such options would give the impression that the EU is prepared to take serious steps to prevent the eurozone crisis spreading.

With the summit taking on increasing symbolic importance with each day, French president Nicolas Sarkozy will meet Chancellor Merkel in Berlin on Wednesday to discuss their positions.

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