July 18 (Bloomberg) -- Germany said it’s confident that European leaders will reach agreement on funding a second Greek bailout at a July 21 summit, as investors sell Spanish and Italian bonds on concern that the crisis is spreading.
“We must master this challenge,” Steffen Seibert, Chancellor Angela Merkel’s chief spokesman, said in Berlin today. “The way the chancellor sees it, the specific meeting this Thursday is about agreeing precisely on the main points of a new program for Greece, with all relevant details.”
European leaders plan to meet for the second time in a month to revamp their debt crisis-fighting strategy, aiming to break a deadlock that has spooked investors and prompted the International Monetary Fund to warn of contagion. European Central Bank President Jean-Claude Trichet reiterated opposition to any Greek debt restructuring in comments published yesterday.
European Union President Herman van Rompuy last week asked government chiefs to meet on July 21 in Brussels to discuss “the financial stability of the euro area as a whole and the future financing of the Greek program.” Among topics for the talks is a potential overhaul of the 440-billion euro ($618 billion) rescue fund to enable Greece to better pay its bills.
Italian and Spanish bond yields surged to euro-era records today and yields on two-year Greek debt also reached the highest since the 17-nation single currency’s debut. Yields on 10-year Italian bonds increased 25 basis points to 6.021 percent as of 12:34 p.m. in London, the highest level since 1997. The cost of insuring against default on European sovereign debt, including bonds sold by Greece, Ireland, Italy, Portugal and France, rose to records.
Merkel has stoked uncertainty by declining to confirm she will attend the summit amid discord among policy makers over her demand to make bondholders share the burden of the next Greek rescue.
German officials signaled a shift today, with Finance Ministry spokesman Martin Kotthaus saying Germany is “optimistic and positive that we’ll have a package for Thursday that will secure Greece’s debt sustainability in the long term.” Merkel “will always attend” if a summit happens, Seibert said.
“This crisis has clearly taken on more systemic risk,” said Laurent Bilke, head of interest rates strategy for Europe at Nomura International Plc in London and a former European Central Bank economist. “It’s crucial at the current juncture for policy makers to get the right things done.”
Lifeline for Greece
A summit was originally mulled for last week before being postponed amid German fears it would backfire without a pact on how the private sector can bear some of Greece’s euro debt burden. This week’s meeting takes place just over a year since leaders organized a 110-billion euro lifeline for Greece.
Germany’s government says no extra aid is possible without bondholders being forced to stay exposed to Greek debt. It has incurred the ECB’s wrath by pushing for a debt swap.
“The more we get private investors voluntarily involved now, the less likely we will have to take further steps,” Merkel said in an ARD television interview yesterday. “Of course we have to be prepared, but the most important thing is that Greece has to do its homework and private creditors are brought into the fold.”
--With assistance from Maria Petrakis in Athens, Matthew Brockett in Frankfurt, Brian Parkin and Rainer Buergin in Berlin, and James G. Neuger and Jonathan Stearns in Brussels. Editors: Leon Mangasarian, Craig Stirling.
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