GERMAN Chancellor Angela Merkel expects a package of measures towards solving the eurozone debt crisis to be agreed on October 23, but warned against hoping all of Europe's debt woes would be resolved, her spokesman said this morning.
Spokesman Steffen Seibert said a "package" of measures would be agreed upon at the European Union summit in Brussels this coming Sunday, but "the chancellor reminds (everyone) that the dreams that are emerging again, that on Monday everything will be resolved and everything will be over, will again not be fulfilled," Mr Seibert said.
The comments, which saw stock markets in Europe and the US pare gains, echo those of German Finance Minister Wolfgang Schäuble, who yesterday said he expects European leaders to agree on new measures to combat market uncertainty at the coming summit — including a 9 per cent Tier-1 capital ratio for the 91 banks that underwent stress tests in July — but cautioned a permanent solution to the debt crisis is unlikely to come out of the summit.
At the Group of 20 meeting of finance ministers and central bank governors last weekend, Germany and France said they had agreed on broad outlines of a package that included recapitalisation of systemically relevant European banks and leveraging the eurozone bailout fund to give it more firepower. Agreements between Europe's two biggest economies was expected to set the stage for a broader European agreement on resolving Greece's debt woes, creating a powerful bailout mechanism and shoring up European banks against sovereign default.
Although Paris and Berlin stressed details on each of these points still needed to be worked out and the deadline for a comprehensive plan is the Cannes summit of G20 leaders, financial markets were stunned by the appparently cautious comments by Ms Merkel's spokesman. Ms Merkel's comments were made last week — before the G20 meeting — at a meeting of IG Metall trade union members.
Ms Merkel has repeatedly said recently the eurozone debt crisis will take years to resolve, but there has been optimism Germany and France were finally moving toward a comprehensive solution to the crisis.
Mr Seibert said the chancellor considers what has been achieved so far as "important steps on a long journey, a journey that will certainly continue well into next year".
Meanwhile, speaking at a conference in Düsseldorf, Mr Schäuble said he "assumes" European Union leaders will agree a Tier-1 capital ratio — the ratio of a bank's core equity capital to its total risk-weighted assets — of 9 per cent for the stress-tested banks.
European leaders will take steps to "provide cover for uncertainty in financial markets", although a permanent solution is unlikely, Mr Schäuble said.
The EU is under pressure to present a solution to its debt crisis at its summit on October 23. But it faces resistance from banks over plans for larger write-downs on Greek government debt and a forced recapitalisation of banks.
The European Commission last Wednesday outlined proposals to shore up European banks in the face of the region's escalating debt crisis. Those with inadequate capital will need to raise it from private sources or the government, the commission said.
The European Banking Authority, the pan-European Union banking regulator, suggested the threshold for core Tier-1 capital requirements could be raised to 9 per cent, according to a confidential communication to national banking authorities, an EU official said last Wednesday. This summer's stress tests of European banks set the threshold at 5 per cent.
Mr Schäuble warned the eurozone's debt crisis must be resolved quickly in order to reduce the impact on Germany's economy.
"We need a durable solution for Greece," which will involve a reduction of Greece's debt, Mr Schäuble said.
However, some measures to resolve the crisis, including changes to the EU's treaties, will take longer to resolve, he said.
WSJ
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