Bloomberg News

Merkel Calls Greek Debt Losses ‘Troubling Message’ to Investors

October 22, 2011

Oct. 22 (Bloomberg) -- German Chancellor Angela Merkel said asking holders of Greek bonds to accept a cut in their value sends a “troubling message” to investors in European debt, which must be corrected to protect other states from suffering the same fate.

Moves at a summit in Brussels this weekend to persuade banks to accept cuts in the value of Greek debt must be accompanied by steps to protect other euro-region bonds, Merkel told Young Christian Democrats today in the German city of Braunschweig. “That’s why we must make it very clear that what we’re doing in Greece is because Greece has very particular problems,” she said.

Investors assumed the euro region is “a secure terrain, only to find out that you can lose money here -- that’s for all of us in Europe a troubling message,” Merkel said. “We need to protect the other countries in the region -- that’s why we’re erecting this big protection umbrella.”

European officials at the summit may try to persuade holders of Greek bonds to accept a 50 percent cut in their value to help restore Greece to fiscal health. Merkel may be apprehensive of crushing confidence in euro-region bonds before a comprehensive set of tools is agreed to bolster the region’s bailout fund.

Voluntary Agreement

Germany wants a voluntary agreement with banks by an Oct. 26 summit, the second of two leaders’ meetings in four days, a Merkel aide told reporters in Berlin yesterday. Banks agreed on a 21 percent writedown on their Greek holdings in the summer but now face a deeper loss amid signs Greece’s economic and fiscal health has deteriorated.

Merkel and French President Nicolas Sarkozy spoke by phone today to discuss the euro crisis, according to a spokesman for Sarkozy. They are scheduled to meet tonight with other European leaders in Brussels, then at a summit tomorrow and at an Oct. 26 meeting to complete a plan to address the debt contagion.

Germany’s accumulated debt has risen to 83 percent of gross domestic product this year from about 68 percent at the start of the international banking crisis in 2008, Merkel said, underlining an endemic problem in the euro region. “We must all consolidate spending to cut debt,” she said.

--Editors: Andrew Langley, Jones Hayden

To contact the reporter on this story: Brian Parkin in Braunschweig, Germany at bparkin@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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