Sarkozy and Merkel to Meet in Frankfurt
Business + Economy

Sarkozy and Merkel to Meet in Frankfurt

The leaders of Germany, France, the IMF and European Central Bank are meeting Wednesday night, to prepare for a crucial European summit that markets hope will produce a comprehensive solution to the deepening euro debt crisis and save the 17-nation euro currency.

The last-minute, "informal working meeting" will take place in Frankfurt, a French official said. It comes amid mounting pressure on European leaders to shore up their banks, slash debts and halt market volatility with a dramatic plan at the EU summit Sunday.

Financial markets have become volatile, swinging on reports and comments about the success and scope of the plan.

German Chancellor Angela Merkel said the summit on Oct. 23 "will not be the end point of regaining trust. It will be a point at which we act, but much more will follow."

At an event marking the retirement of ECB President Jean-Claude Trichet, Merkel repeated her warning that "if the euro fails, then Europe fails. But we will not let that happen."

The French official said President Nicolas Sarkozy left Paris on Wednesday afternoon for Frankfurt to meet Merkel, IMF chief Christine Lagarde, incoming ECB chief Mario Draghi, EU President Herman Van Rompuy and European Commission President Jose Manuel Barroso. The official was not authorized to be publicly named according to presidential policy.

Sarkozy had earlier told a cabinet meting that the Sunday summit in Brussels "is a crucial moment, for Europe and for France," government spokeswoman Valerie Pecresse said.

But expectations have fluctuated. Earlier this week, German finance chief Wolfgang Schaeuble said that the measures to be announced Sunday would not mark the end of the eurozone debt crisis and that some parts may need more time to be ironed out.

The hope has been that eurozone governments are preparing a three-pronged solution to the debt crisis — measures to boost the firepower of their fund to bail out weak states, a recapitalization of a large part of the banking sector and a plan to get banks to take a bigger hit on their Greek debt holdings.

France and Germany disagree on the last point. Germany is pushing for banks to accept cuts of 50 percent to 60 percent on their Greek bondholdings, while France is insisting that only technical revisions should be made to a preliminary agreement reached with private investors in July. That deal called for a 21 percent loss on the bonds.
Markets recovered after The Guardian newspaper reported that France and Germany were putting the finishing touches on a massive expansion of the bailout fund, possibly to euro3 trillion ($4.1 trillion) from the current euro440 billion.

German Finance Ministry spokesman Martin Kotthaus, however, said there was no agreement yet in the eurozone on how to boost the EFSF's lending capacities beyond the euro440 billion it has available.

Expanding the bailout fund is not an option, but the aim is to maximize the possible impact of the committed funds, he said.

"The question is: how can we maximize the efficiency of those euro440 billion?" he said.

Kotthaus described as inaccurate media reports that Schaeuble suggested Berlin was prepared to use an insurance model to boost the lending capacity to euro1 trillion. If Schaeuble used the euro1 trillion figure in a briefing with lawmakers, he may have used it only as an example to illustrate how the idea of leveraging the EFSF could work, he added.

"We have extremely intense discussions, conferences and telephone conferences" to prepare this weekend's summits, he said. "We are still in the middle of the discussions. We are working under high pressure. We will certainly have a solution in the coming days," he added.
David McHugh in Frankfurt and Juergen Baetz in Berlin contributed to this article.

Copyright 2011 The Associated Press.