Collapse of euro could pose threat to peace, says Angela Merkel

As European leaders struggled to reach a deal over a bail-out package, Mrs Merkel said “the world is watching” and that “if the euro collapses, then Europe collapses”.

Silvio Berlusconi, the Italian prime minister, was said to have offered to resign in January in exchange for the support of his coalition partners in raising the Italian retirement age.

A subsequent debate over the issue in the Italian Parliament descended into a fist fight.

On what was billed as a “make or break” summit for the eurozone, leaders from across the continent descended on Brussels for all-night talks. It was the second summit in the past week, and the 14th in the past 21 months.

Before the day had even begun, finance ministers cancelled a planned meeting which was due to discuss the technical detail of a bail-out for the single currency.

A spokesman for the European Commission said that only a “political deal” was on the table, despite the financial markets expecting a detailed agreement containing a breakdown of exactly how the crisis would be tackled.

International investors are expecting a bail-out worth more than one trillion euros although the EC said that the final “figure” would not be drawn up for several weeks.

By mid-afternoon, talks between the EU and major banks had been suspended after those who had lent money to Greece were asked to write off about half of the loans they had made to the beleaguered country.

Last night Alistair Darling, the former Labour chancellor, said it was essential that banks accepted substantial losses on their Greek debts to avoid triggering another global credit crisis.

“It’s quite clear the banks are certainly going to take a write-down or a 'haircut’ as they say in the jargon, which is why they will need to be recapitalised, but it could be that some governments are going to be in it as well,” he said.

“Whatever the whys and wherefores of that, though, if they don’t sort it, if they just Lehmans-like let it collapse into a heap of rubble then stand back and watch what happens, well, look what did happen three years ago. They can’t afford to do that this time.”

Mrs Merkel said European leaders could not allow the single currency to fail as “the world is watching”.

“Nobody should believe that another half century of peace in Europe is a given — it’s not,” Mrs Merkel said. “So I say again: if the euro collapses, Europe collapses. That can’t happen.”

Although German politicians formally backed Mrs Merkel’s call for an increased European bail-out fund, the German government is refusing to allow the European Central Bank (ECB) to lend money directly to countries in the single currency.

This threatened to undermine a deal which involved enough “firepower” to tackle the crisis.

The British Government, although not directly involved in the euro deal, is thought to favour a greater role for the ECB.
The Telegraph