Angela Merkel, Germany’s chancellor, sought on Tuesday to quash speculation that a Greek default was imminent, insisting that no such event could happen before 2013 even as markets continued to gyrate wildly over eurozone fears.
Mixed messages from members of Germany’s ruling centre-right coalition have fed recent market turmoil. But the chancellor slapped down her political partners for speculating about Greek insolvency, or even an exit by Athens from the euro.
“Everyone should weigh their words very carefully. What we do not need is alarm in financial markets,” she said. “There is already enough uncertainty.”
Her intervention came in a radio interview, 24 hours after Philipp Rösler, her vice-chancellor and economy minister, called for the “orderly insolvency” of Greece to be put on the political agenda once “the necessary instruments are available”. Ms Merkel said such a situation would not arise before 2013, when the eurozone’s permanent rescue fund, the European Stability Mechanism, is due to come into operation.
The German chancellor’s remarks came as US President Barack Obama warned eurozone leaders in an interview with Spanish journalists that they needed to show markets they were taking responsibility for the debt crisis.
Ms Merkel and Nicolas Sarkozy, the French president, are holding a conference call on Wednesday with George Papandreou, the Greek prime minister.
The purpose would be to assure Mr Papandreou of their support for his “almost superhuman efforts” in reforming the Greek economy and curbing its borrowing, according to one senior official. At the same time they would urge him to deliver measurable progress on Greece’s promises in exchange for the next tranche of its rescue package from the European Union and International Monetary Fund, the official added.
Ms Merkel insisted in a radio interview in Berlin that Germany and its eurozone partners were working “with all the means at our disposal” to avoid a Greek default, because such an event could cause contagion throughout the currency area.
Amid the continued uncertainty, markets experienced extreme volatility, with French banks the focus of attention. Société Générale fell 8 per cent in morning trading before rebounding to close up 15 per cent.
“It is very difficult for people to trade in these markets. The market sells off and rallies on spurious rumours,” said Gary Jenkins, head of fixed income at Evolution Securities.
Sergio Marchionne, the chief executive of Fiat and Chrysler, the Italian and US carmakers, underlined the concerns of business leaders, saying at the Frankfurt motor show: “I think there is a possibility, if the wrong steps are taken, that the system goes off the rails. The problems must be confronted in a serious way.
“It is not pleasant right now. We are not totally calm about this instability and the way in which the European crisis is being managed.”
Jens Weidmann, president of the Bundesbank, also called for bolder action from EU governments. In a speech in Cologne, he warned that a decision “would have to be taken soon” on either a “big jump” towards political union or a return to a monetary union based strictly on countries taking responsibility for their own finances.
The middle way of pooling responsibility but retaining national fiscal policies “threatens to collapse under its own inconsistency,” he said.
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