Fixing the debt crisis in Greece Essay
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Central Idea: American officials exhorted their European counterparts to use Europe’s own resources to try to solve the crisis.
Preview: Echoing past statements, Sarkozy and Merkel said banks should first raise money from the private sector before seeking state aid or money from the EU bailout fund. “These issues must all be resolved,” Merkel said. “It’s a painful process.” Sarkozy stressed that the leaders are fully aware of their responsibilities, saying they have a “moral, political and economical obligation” to act decisively.
The leaders are also working on how best to leverage the European Financial Stability Facility. The €440 billion fund, which was recently granted the power to intervene in sovereign debt markets and provide loans for governments that need to recapitalize banks, is widely seen as needing additional firepower. “It’s important to boost the emergency fund to protect the euro,” said Merkel. But many EU governments have ruled out backing the fund up with additional loan guarantees.
CANNES, France — President Obama plunged Thursday into the fast-moving European debt crisis, arriving here to exhort European leaders to get their financial house in order.
But while the president hustled from meeting to meeting with world leaders, he was in many ways thrust into the rare position of bystander, as the unfolding drama over whether the Greek government would fall (it did not) and whether Greece would back the comprehensive accord to protect the euro reached last week (it will, at least for now) dominated conversations in the hallways and conference rooms here in this iconic seaside town. The grand Espace Riviera is more accustomed to red-carpet arrivals by movie stars and hangers-on for the Cannes Film Festival; on Thursday it was transformed instead into ground zero for blue-suited bureaucrats grappling with a financial crisis and the global contagion that it threatened. Instead of Angelina Jolie posing before the paparazzi, it was Chancellor Angela Merkel of Germany holding a frozen smile as she greeted Mr. Obama in front of the cameras.
There was little preening before the hundreds of reporters gathered from all over the world; President Nicolas Sarkozy of France quickly swept Mr. Obama into a meeting to discuss how to try to stop the unfolding Greek drama from turning into a tragedy, for global markets at least. Mr. Obama arrived early Thursday morning and, during an initial meeting with Mr. Sarkozy, he called the European financial crisis the most important task for world leaders gathered at the Group of 20 economic summit meeting. For Mr. Obama, the stakes are high. He has called the European financial crisis the largest headwind facing the American economic recovery, and he knows that his own re-election prospects are tied to how well the American economy does.
But at the same time, his leverage is limited. In public, Mr. Obama largely stuck to his administration’s official message that Europe’s leaders must “flesh out details” about the plan they agreed to last week in Brussels to deal with the debt crisis in the 17 European Union countries that use the euro. But American officials, including Treasury Secretary Timothy F. Geithner, were huddled in private with their European counterparts trying to hash out an agreement that, at the very least, would stop the disintegration under way in Greece from spreading toItaly and Spain, a contagion that could further stymie America’s own anemic economic recovery.
American officials exhorted their European counterparts to use Europe’s own resources to try to solve the crisis, instead of seeking bailout help from China. Obama administration officials point to the steps that the United States took to try to address its own financial crisis over the past three years. “Look, we went through this ourselves,” an Obama administration official said on Thursday, speaking on grounds of anonymity because he was not authorized to speak publicly. “They have the capacity to handle this within Europe.” Jay Carney, the White House press secretary, said that the 2008 Wall Street crisis could provide insight on steps Europe should take. He maintained that the United States remains influential in advising its allies on how to deal with the problem, even if the United States is in no position to provide financial support. “The United States, obviously, has a great deal of influence, because of who we are and the role we play in the global economy, and globally in general,” Mr. Carney said in a news briefing on Wednesday. “I would not discount the significance of the experience that we have in terms of its usefulness to the Europeans.”
The Obama administration is not eager to see an increase in the resources sent by the International Monetary Fund to Europe; that might further mute American influence as the additional resources would most likely not come from the United States, but rather from Asia — and most likely China. “The I.M.F. has a substantial amount of resources to deal with a range of challenges in Europe and around the world,” said Benjamin Rhodes, the deputy national security adviser for strategic communications. Michael Froman, the deputy national security adviser for international economic affairs, said the turmoil in Greece and uncertainty over how exactly Europe plans to carry out its accord to cut Greece’s debt and shore up its finances “underscores the need to move rapidly toward the full elaboration and implementation of the plan.” Specifically, Mr. Froman said that the United States wants to make sure that Europe has “a firewall that is sufficiently robust and effective ensuring the crisis does not spread from one country to another.”
Mr. Froman said the United States was also trying to make sure that attention was also paid to stimulating economic growth, both in Greece and throughout the euro zone. Part of the anger among Greek citizens has stemmed from a belief that the euro agreement focuses more on Greek austerity and repaying the banks than on growth, a balance that many people fear could lead to higher unemployment rates as the Greek government cuts public sector jobs to pay its creditors and stabilize its finances. “I think right now the highest priority in Greece is stabilizing the situation,” Mr. Froman said. “But the program that Greece has is also about reforming its system and engaging in structural reforms, so that it could become more competitive and therefore grow as part of the euro area.”
NEW YORK (CNNMoney) — Europe’s top leaders said Sunday that they were getting closer to finalizing a plan to solve Europe’s debt crisis. But with a final agreement not expected before Wednesday, the actual details remained under wraps.
“The technical complexities are significant,” said French President Nicolas Sarkozy, adding that there are large amounts of money involved. The European Council, comprising government heads from all 27 members of the European Union, met Sunday in Brussels to hammer out a plan to boost capital levels for banks, enhance a government-backed rescue fund and provide debt relief for Greece. Speaking alongside German Chancellor Angela Merkel, Sarkozy said in a midday press conference that the leaders had made progress on the “ambitious” and “durable” response to the long-running crisis. “We would not be meeting on Wednesday if we were not really trying this time,” Swedish Prime Minister Fredrik Reinfeldt told CNN. Meanwhile, Merkel noted that EU finance ministers had made progress over the weekend on a solution for capital-starved banks.
In principle, the finance ministers have agreed to funnel about €100 billion into banks to boost capital levels. But Merkel added that strengthening banks without resolving the debt crisis in Greece and supporting other nations with unsustainable debts will not work. Europe’s debt crisis: full coverageEchoing past statements, Sarkozy and Merkel said banks should first raise money from the private sector before seeking state aid or money from the EU bailout fund. “These issues must all be resolved,” Merkel said. “It’s a painful process.”
Sarkozy stressed that the leaders are fully aware of their responsibilities, saying they have a “moral, political and economical obligation” to act decisively. The leaders are also working on how best to leverage the European Financial Stability Facility. The €440 billion fund, which was recently granted the power to intervene in sovereign debt markets and provide loans for governments that need to recapitalize banks, is widely seen as needing additional firepower. “It’s important to boost the emergency fund to protect the euro,” said Merkel. But many EU governments have ruled out backing the fund up with additional loan guarantees.