Monday, October 10, 2011

European Financial Stability Negotiations

Said Merkel, "On this I agree
With Monsieur Président Sarkozy:
There's a pretty good chance
Of a downgrade for France
And political fallout for me."

Against the backdrop of the failure of the French-Belgian bank Dexia, French President Nicholas Sarkozy met with German Chancellor Angela Merkel on Sunday to resolve their differences over the path to European financial stability. The two announced to the press that a deal would be struck by the end of the month, meaning that agreement is still a long way off. France would like its banks to have access to the European Financial Stability Facility for capital support, but Germany - the biggest contributor to the EFSF - would face domestic political unrest. The Germans, for their part, would like troubled banks to draw on private or national capital sources, but France might face a downgrade if it tried to shore up its banks on its own. A Franco-German agreement is key to resolving the Greco-Italo-Hispano debt crisis that grips Europe.

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