German Chancellor Angela Merkel said Europe’s fiscal crisis can’t be solved in one go, damping expectations that government leaders may resolve the region’s debt woes at a July 21 summit.
“There won’t be one spectacular step” this week, Merkel told reporters in Hanover, Germany, today. “It’s entirely about creating a controlled, composed process of gradual steps and measures.”
Merkel’s comments come as European officials struggle to agree on measures to fight a crisis that is spreading from Greece and today sparked a jump in Spanish financing costs after a treasury bill auction. Policy makers are split on how to prod investors into financing a new Greek bailout package and whether the 17-nation euro area should issue eurobonds to help debt- laden nations tap markets.
The euro rose 0.5 percent to $1.4177 at 4:01 p.m. in Berlin, from $1.4112 yesterday, after earlier rising 0.7 percent. The yield on 10-year German government bonds, the region’s benchmark, increased six basis points to 2.71 percent.
“I don’t expect European leaders to reach a decision this week,” said David Kohl, deputy chief economist at Julius Baer Group in Frankfurt. “They’ll continue to fight over whether to include bondholders or not. Still, a Greek debt restructuring wouldn’t be a solution to the problem.”
Second EU Summit
European Union leaders plan to meet for the second time in a month on July 21 in Brussels, aiming to break a deadlock over a new Greek rescue that has spooked investors. There are no current plans for euro region finance ministers to convene as a group before the leaders’ summit, said an EU official, who declined to be identified because preparations for the meeting are ongoing.
Spanish and Italian bond yields surged yesterday, piling pressure on officials to end the turmoil. Spain and Greece sold 6.08 billion euros ($8.6 billion) of bills today. The Treasury inMadrid said it sold 3.79 billion euros of 12-month bills at an average yield of 3.702 percent, compared with 2.695 percent the last time the securities were sold on June 14.
Merkel said the euro region’s problems must be solved “from the core,” which means reducing debt and increasing competitiveness.
Governments Squabble
Europe’s debt crisis has worsened this month as EU governments squabble with each other and with the European Central Bank about what to do. ECB President Jean-Claude Trichet said July 10 that Europe is at the “epicenter” of a debt crisis that concerns the entire developed world and urged the euro area to do the “maximum” in terms of governance reforms.
Merkel’s comments came after Austrian Finance Minister Maria Fekter said EU leaders would seek a “comprehensive solution” to Greece’s debt crisis and stop the contagion threat at their summit. She told reporters in Vienna today the European Financial Stability Facility probably needs “more flexibility” and that Greece may need longer repayment times for its rescue loans.
EU leaders have a “menu of options,” Francois Perol, head of the French Banking Federation, told reporters today in Paris. “Some might be interested by forms of buyback, others by renewal formulas,” he said, declining to give further details.
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