France’s president Nicolas Sarkozy flew to Frankfurt on Wednesday night for an emergency meeting with leading players in the eurozone crisis including German chancellor Angela Merkel, as Franco-German differences bedevilled attempts to agree a comprehensive package of measures.
The meeting broke up after two hours with neither the German or French leaders making any comment.
Amid signs of growing tension in the negotiations, the French head of state had announced his sudden decision to attend the talks after a brief visit to the Paris maternity clinic where his wife Carla Bruni was giving birth to their first baby, a girl.
He told a group of parliamentarians earlier that the talks had become bogged down over the issue of whether the European Central Bank should support the €440bn European financial stability facility, the eurozone rescue fund set up to prevent contagion from the sovereign debt crisis.
Jean-Claude Trichet, the outgoing president of the European Central Bank, also attended the meeting in the wings of the festivities at the Alte Oper in Frankfurt organised to mark his retirement, along with Mario Draghi, his successor, and Christine Lagarde, head of the International Monetary Fund.
Herman Van Rompuy, president of the European Council, and Jose Manuel Barroso, president of the European Commission, were also involved, as were Francois Baroin and Wolfgang Schauble, the French and German finance ministers.
With just four days to go before the European Union and eurozone summits that are supposed to agree the package of crisis measures, big differences remain between Paris and Berlin not only on the financial fire-power of the EFSF, but also on the size and shape of the proposed “haircut” for private creditors in a voluntary rescheduling of Greece’s outstanding debt.
Mr Baroin said on arrival in Frankfurt that France was sticking to its proposal to turn the EFSF into a bank, backed by the ECB. But he admitted that both the central bank and the German government were opposed.
“We think that clearly the best solution is that the fund has a banking licence with the [ECB], but everyone knows about the reticence of the central bank,” he said. “Everyone also knows about the Germans’ reticence. But for us that remains … the most effective solution.”
Mr Sarkozy had already spoken to Ms Merkel by telephone earlier on Wednesday. Charles de Courson, one of the National Assembly members who met the president in Paris, said: “It is not just Merkel who needs to be convinced … [The president] hopes to find a solution. If there is not a solution on Sunday, everything could melt.”
Hitherto the German government has been strictly opposed to any suggestion that the ECB should provide the eurozone rescue fund with a line of credit, to ensure that the EFSF maximises its financial resources. That position was confirmed again yesterday by German officials.
Ms Merkel has very little room for manoeuvre in Berlin. She faces strong political resistance in the German parliament to any concessions that might increase Germany’s financial guarantees for the EFSF, or undermine the independence and credibility of the ECB.
The negotiations are being closely monitored in the Bundestag, whose members are required to give their approval to any changes in the operation of the rescue fund, and any new debt rescue programmes in the eurozone. The budget committee will meet Mr Schauble on Thursday, and he and Ms Merkel will address the government’s parliamentary supporters on Friday morning, followed by a formal statement by the chancellor to the Bundestag before she leaves for Brussels.
HSBC Global Research