Sarkozy pledges to fast-track eurozone rescue as slump fears grow

French leader praises Papandreou’s commitment to austerity French president Nicolas Sarkozy is to hold urgent talks in Germany with chancellor Angela Merkel on speeding up the rescue plan for the euro. Sarkozy said on Friday the talks would take place within days as uncertainty about the eurozone’s stability and worries about deepening recession returned to European markets. Declaring after talks with Greek premier George Papandreou that “a failure of Greece would be a failure for all of Europe”, the French president praised Athens for its determination to meet its commitments and said: “There can be no question of dropping Greece.” His comments came as European leaders turned up the heat on Slovakia to approve the enhanced eurozone rescue fund amid growing fears it could yet scupper the scheme. Only a day after huge relief at Germany’s decision to endorse the expanded bailout fund, anxiety stalked markets and the corridors of power as eurozone inflation rose to a three-year high of 3%, shares in French banks plunged as much as 10% and Denmark’s central bank offered 400bn krone (£46bn) in emergency liquidity for the country’s banks. There was renewed talk of a Greek debt default and larger “haircuts” for private bondholders as Papandreou sought backing for a further €8bn (£6.8bn) lifeline to save his country’s treasury from bankruptcy. Sarkozy said: “There is a moral and economic obligation of solidarity with Greece.” Papandreou in turn told reporters that his nation was making all the required sacrifices and reforms. “I wish to make it perfectly clear that Greece, I myself, our government, the Greek people, are determined to make the necessary changes.” Yet conflict sprang up anew over plans to set up an even bigger rescue fund for the eurozone, with leading European bankers demanding an outline agreement on a new scheme by the time G20 finance ministers meet in mid-October. Austria brought some solace, becoming the 14th eurozone member to endorse enhanced powers for the €440bn European Financial Stability Facility when its parliament voted 117 to 53 to raise their country’s contribution to €21.6bn. After the Bundestag voted overwhelmingly in favour on Thursday, Germany’s second chamber, the Bundesrat, followed suit – leaving only Malta (next week), the Netherlands (on 6 October) and Slovakia to vote. The first two are expected to endorse the enhanced EFSF even though the Dutch minority government will have to rely heavily on the opposition for support. But the coalition government of Slovakian premier Iveta Radicova – who has held private talks with Merkel on the issue – has been seeking concessions from its eurozone partners. One of the four parties in the coalition, the Freedom and Solidarity (SaS) party, is, according to varying reports, either digging in its heels, refusing to endorse the expanded EFSF, or moving closer to a compromise. Opposition support is said to be uncertain. Radicova wants to secure the Slovak parliament’s endorsement before she attends the next EU summit on 17 October, but her requests for concessions to help her win that backing have been rejected so far. In Brussels, aides to Olli Rehn, the economic and monetary affairs commissioner, ruled out any changes to the 21 July package to enhance the EFSF. Asked by Slovak reporters if there was a Plan B, as Radicova could not deliver, they said: “There’s no Plan B as Plan A was unanimously approved by all the 17 leaders in July as the vital tool to ensure financial stability in the euro area.” Reuters reported from Bratislava, the Slovak capital, that Maros Sefcovic, a European commissioner, had said: “I cannot imagine renegotiation of [EFSF] documents and agreements beyond what they agreed … after so many countries, including Germany, approved it.” A Slovak no vote might force eurozone leaders to conclude a new deal without Bratislava, or they could take on the country’s €3.5bn contribution to the enhanced EFSF guarantees of €780bn and share it out among themselves. Alternatively, they could agree to shave those guarantees by a small amount. The uncertainty spilled over into markets worried that the surge in eurozone inflation to 3% could stop the European Central Bank cutting interest rates when it meets in Berlin next week. The ECB meeting, the last of his eight-year term for its president, Jean-Claude Trichet, is expected to reverse the two rate increases it imposed this year, amid widespread criticism that its erroneous judgment had simply deepened the prospects of renewed recession. The bank is now thought more likely to continue to offer more liquidity to eurozone banks, which are terrified by the merest hint of a Greek default. As German coalition ministers continued to fall out over “leveraging up” the EFSF, it was being said in banking circles that the key response would be to get the ECB to endorse proposals to turn the facility into an insurance scheme for providing first-loss guarantees. Wilbur Ross, the private equity billionaire, told Bloomberg TV: “I not convinced that this bailout package is going to be remotely enough … I think it should start with a T [for trillion], not a B [for billion].” European debt crisis Nicolas Sarkozy Angela Merkel Germany France Greece European banks Europe David Gow guardian.co.uk

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