Summit 'will not fix' Greek debt

 

A meeting of euro zone leaders on Thursday will not be the final step in the resolution of Greece's debt crisis, German Chancellor Angela Merkel said today, damping expectations that European leaders will be able to draw a line under the turmoil at the July 21st summit.

"Those who want to take political responsibility, and that's what the government wants and takes seriously, know that responsibly there won't be one spectacular step" this week, she said at a joint news conference with Russian president Dmitry Medvedev in Hanover.

"It's entirely about creating a controlled, composed process of gradual steps and measures."

Ms Merkel's comments come as European officials scramble to agree on new measures to fight a crisis that is spreading from Greece and today sent Spanish financing costs surging at a bill auction.

Policy makers are split on how to make investors help foot the bill for a new Greek bailout and whether the 17-nation euro area should issue eurobonds to ease access to markets for debt-laden nations.

Ms Merkel said the euro region's problems must be solved "from the core," which means reducing debt and increasing competitiveness.

EU leaders will seek a "comprehensive solution" to Greece's debt crisis and stop the contagion threat, Austrian finance minister Maria Fekter said.

"We'll probably need to give the EFSF more flexibility," Ms Fekter told reporters in Vienna today, referring to the euro region's rescue fund, the European Financial Stability Facility.

Ms Fekter said Greece may also need longer repayment times for its rescue loans, reiterating a July 11th statement by euro-region finance ministers.

In March, euro-area leaders agreed to cut the interest rates on loans under Greece's 2010 bailout and extended the repayment period to 7 1/2 years from 3 years. "We will need to give the Greeks more time," Ms Fekter said.

While Germany wants private investors to take part in a second bailout package for Greece, European Central Bank president Jean-Claude Trichet has said the ECB won't accept Greek government bonds as collateral for loans in the event of a default or "credit event."

Regarding private-sector participation, "we are still in the process of seeing which of the suggested measures would be the most efficient," Ms Fekter said.

Agencies