US backs euro ahead of "difficult" summit

December 8, 2011

US backs euro ahead of "difficult" summit

Paris, US Treasury Secretary Timothy Geithner voiced confidence Wednesday that Europe would beat its debt crisis, but Germany admitted that progress at this week's crucial EU summit will be difficult.

"I assessed how important it is for the US and countries around the world that Europe succeed," Geithner said after talks with French Finance Minister Francois Baroin in Paris. "I'm confident they will succeed."

But a spokesman for the chancellor of European economic powerhouse Germany, Angela Merkel, said negotiations at the crunch summit opening in Brussels on Thursday and widely seen as the last chance to save the euro would be tough.

"From the German point of view, there is also a very challenging agenda for this summit... we are expecting very challenging and occasionally very difficult talks," Steffen Seibert told journalists.

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He said that Germany was travelling to Brussels with the desire for a "new legal framework" for the EU as a response to the eurozone debt crisis that has threatened to tip the bloc into a recession.

The summit is crucial to efforts to stop the debt contagion threatening the eurozone and salvage the embattled single currency.

Leaders will look at ways of strengthening convergence, improving budgetary discipline and deepening economic union, with Geithner on a whistle-stop tour of the eurozone ahead of the summit to try to spur decisive action.

France and Germany have called for changes to the EU treaty to improve the framework of the eurozone, which is now generally seen as defective, almost 10 years after the currency was introduced.

Earlier on Wednesday, a German government source who insisted on anonymity, poured cold water on hopes for a deal at the summit, saying he had become "more pessimistic" in recent weeks for a "total agreement" at the gathering.

"Several partners have not yet understood the gravity of the situation" facing the EU, the source said.

Geithner, who is meeting leaders including French President Nicolas Sarkozy, said he wanted to "make sure there is a sufficient strong firewall in place" to stop the crisis spreading.

Baroin said the 17-member eurozone needed to create a "confidence shock" after months of what the markets perceive as leaders' torpor.

He stressed that in Brussels "neither Angela Merkel nor Nicolas Sarkozy will leave the table without a strong agreement being signed".

EU leaders are under intense pressure to convince markets they can come up with a rapid rescue plan for the eurozone following the threat of possible debt downgrades by ratings agency Standard and Poor's.

S&P's announcement came hours after Sarkozy and Merkel announced their plan for a new EU treaty and tougher budgetary rules, including swift sanctions for lax eurozone economies, following crisis talks in Paris on Monday.

The debt warning means that Germany, France and other eurozone countries could lose their top-notch credit ratings without urgent action and their borrowing rates would probably rise.

Eurozone bond yields reflected anxious sentiment during trading on Wednesday after Germany made a successful bond issue the day before the EU summit.

Meanwhile the EU's EFSF bailout fund, also the target of the downgrade warning because it is backed by the ratings of eurozone countries, said it intended to issue short-term paper by the end of this year.

EU president Herman Van Rompuy and Commission chief Jose Manuel Barroso will in Brussels raise the controversial idea of issuing so-called eurobonds backed by all eurozone members, which Germany strongly opposes.

A Van Rompuy report lays out a vast array of measures, some of which are already in force or about to be enacted, to tighten monitoring and automatic sanctions against debt offenders, without necessarily requiring a new treaty.

However, the German government source repeated Berlin's opposition to eurobonds, saying they would "increase the problems, not ease them".

Amid fears of a two-speed Europe with non-euro countries, including Britain, left on the outside, the source said there would likely be a separate meeting of the 17 eurozone members during the summit of the EU's 27 states.

European stocks and the euro slid on the downbeat German declarations and pessimism that the EU summit would not deliver the much-needed panacea for the eurozone debt crisis.

Shortly after Wall Street opened, London's FTSE 100 index was down 0.79 percent to 5,524.64 points, while in Paris the CAC 40 slid 1.07 percent to 3,145.45 points and Frankfurt's DAX 30 dropped 1.61 percent to 5,931.88 points. Madrid was down 2.16 percent and Milan 2.55 percent.

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