Merkozy duo plan Greek trusteeship


As Greek bailout talks reached a dramatic turn yesterday (6 February), French President Nicolas Sarkozy and German Chancellor Angela Merkel suggested creating an escrow account to partially reimburse the country's creditors in case of default. EURACTIV France reports.

Taking place in Paris, the 14th French-German Ministerial Council was planned to project a reassuring image of the French-German EU leadership, 80 days from the French presidential elections.

However, it ended up in a lackluster way, with talks of the 'Troika' – the EU, International Monetary Fund and European Central Bank – on securing a second bailout package for Greece entering overtime and the risk of an orderly default on the increase.

In the absence of an agreement between Greece and its private and public creditors, Sarkozy and Merkel were only able to urge Athens to meet its obligations. We need to address the Greek crisis "once and for all," the French president exhorted. "Time is running out for Athens," said the German chancellor.

But the French and German leaders also submitted a new proposal aimed at reassuring Greece's donors. Under the deal, Athens would have to fund a blocked account serving as collateral to the country's lenders. If Greece is unable to honour its debt, its creditors may be partially reimbursed through the fund.

Details of the proposal remain unclear. Sarkozy raised the idea of paying "the interests of the Greek debt" in an escrow account. Merkel for her part explained that "the payment of interest" be achieved "through an escrow account."

For the German press, the step taken is considerable: "Greece should abandon its fiscal sovereignty", a Süddeutsche Zeitung headline said on 6 February.

In contrast, in France the news went almost unnoticed. "The news did not upset the markets, the UK brokers didn't call me," Nicolas Forest, economist at Dexia AM commented.

Asked to provide details, German officials declined to further clarify the proposal made by the two leaders, but confirmed that the objective was to strengthen budgetary surveillance of Greece.

Difficult negotiations

The Greek government is struggling to find an agreement on reducing the size of its debt with private investors. It is also slow to convince its public creditors, that is to say, the other European countries, of its ability to implement the reforms demanded, which include lowering the minimum wage. Without tangible results, EU leaders may refuse the second aid package to Greece of €130 billion, agreed in October.

Yesterday (6 February) political lines began to move, as the Greek government announced a redundancy plan for 15,000 employees. Failure of negotiations between the Greek political parties on the one hand and with private creditors on the other hand, "would be unimaginable," the French president said.

Merkel too said she hoped that "Greece remains in the euro area", while Sarkozy added he was confident of the success of the negotiations. "The elements of the agreement have never been so close," he said.

Fiscal harmonisation

The French-German summit also discussed progress made on fiscal harmonisation and the publication of a "Green book" on the rapprochement of corporate taxation.

According to Sarkozy, the French corporate tax should be adapted to the German model with a broader base and a lowering of rates in France. This project could be completed by the 60th anniversary of the Elysée Treaty in 2013, the chancellor suggest.

The Elysée Treaty is a bilateral treaty signed on 22 January 1963 by German Chancellor Konrad Adenauer and French President Charles de Gaulle.

Attacks against opponent

Journalists asked Sarkozy to comment statements by Socialist leader François Hollande, who leads in the opinion polls ahead of the first round of French presidential elections in April, that he would re-negotiate the intergovernmental 'fiscal compact' treaty.

Sarkozy said that this agreement on budgetary discipline, which is to be signed in early March, is "a commitment of the state and not of a politician".

Merkel concurred and said that she was not in agreement with the decision under her predecessor Gerhard Schröder to start accession negotiations with Turkey, but that she had to abide by it.

However, Sarkozy didn't comment on the ratification of the fiscal compact by the French Parliament, which is not expected before the presidential elections.

Under the Greek rescue plan, private creditors are being asked to voluntary accept a nominal 50% cut in the value of their Greek bond holdings in return for a mix of cash and new bonds.

Private-sector involvement is a key part of a new €130-billion bailout package that needs to be in place by March to ensure Greece does not default on its massive debt.

But talks are not progressing as fast as hoped. The issue is pressing, since a new bailout for Greece from the International Monetary Fund and the EU is hanging in the balance pending the success of private sector involvement.

More generally the failure to agree on the private sector's role comes at a critical moment in the euro crisis, adding to market jitters.

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