THE EU Commission pressed to maintain momentum in talks on the debt crisis as German chancellor Angela Merkel warned that an EU summit on Sunday would not yield the definitive solution to the debacle.
As officials in Brussels expressed concern that the effort to achieve a “grand bargain” deal this weekend might fall flat, Moody’s credit rating agency added to the tension by saying its “stable” outlook on the triple A credit rating of France was under pressure.
France is the second largest euro zone economy. The move by Moody’s underscored how the debt crisis is now casting doubt on the standing of supposedly secure countries. In spite of the heightened sense of risk, German and other euro zone sources said the final package might not be signed off until G20 leaders gather for a summit in Cannes in a fortnight’s time.
According to German reports, Dr Merkel told MPs in Berlin yesterday that the summit would be an important step but not the final one in the battle to resolve the crisis.
German sources say Berlin is close to an agreement to leverage the assets of the bailout fund. This is crucial as the new measures must be approved by a parliamentary committee before the government can back them at European level.
Agreement on the other elements of the plan is said to be further away, fuelling concern that the package will not be ready this weekend.
However, the authorities in Brussels continue to push for an all-embracing pact on Sunday.
“Nothing will happen if all countries do not work hand in hand,” said a spokeswoman for commission chief José Manuel Barroso.
Mr Barroso presented a plan last week in which he urged EU leaders to quickly settle a new bailout for Greece, recapitalise vulnerable banks and expand the remit of their bailout fund.
The commission pushed back yesterday in the face of signals from Berlin that all elements of the package might not be settled this weekend.
“No piecemeal approach is possible any more. We need a comprehensive plan,” said the spokesman for EU economics commissioner Olli Rehn.
“We cannot provide a definitive sustainable solution for Greece without raising the necessary backstops to contain contagion for instance. We cannot leave the issue of the banks aside.”
The spokesman declined to comment on the implications for future euro zone bailouts if Moody’s followed through with a “negative” outlook on French triple A rating, a key step before a credit downgrade.
“I don’t think I can possibly answer that question. This is a matter for the French authorities,” he said.
Still, the development is widely held to be significant. France is Germany’s main ally in the campaign to settle the debt crisis and the euro zone bailout fund leans on the support of all six triple A countries in the euro zone to ensure its own top-level rating.
Even before the move by Moody’s, Paris was concerned that a big infusion of state aid into weakened French banks could compromise the triple A rating.
Such anxieties have already led President Nicolas Sarkozy to seek the right to recapitalise French banks with money from the bailout fund. Dr Merkel has been resisting that, insisting the fund should be deployed only as a last resort.
German sources report progress in ongoing talks with Paris on the rescue package but there is no breakthrough as of yet.