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Angela Merkel admits defeat in struggle to extract money from private sector towards European Union rescue package Angela Merkel has admitted defeat over Germany’s plan to force private banks to contribute funds to a new bailout package designed to rescue the Greek economy. After a meeting with the French president, Nicolas Sarkozy, in Berlin on Thursday, the German chancellor said they had agreed that any contribution from private creditors to the package would have to be voluntary. “We want the participation of private creditors on a voluntary basis,” said Merkel, stressing that there was no legal way in which banks could be forced to play along. She and Sarkozy both declined to set a date for the Greek deal to be finalised. But Sarkozy indicated that time was running out. “We want a quick fix … There is no time to waste,” said Sarkozy. The summit was well received by financial markets, which have fallen sharply in recent days as investors feared that Greece would suffer a disorderly default. In London, the FTSE 100 index erased early losses, and the euro strengthened against other major currencies. Greek government bonds also staged a small recovery. The yield, or interest rate, on the two-year Greek bond dropped to 28.6%, from over 30% early on Friday. Merkel’s admission was a significant climbdown from her earlier position. Berlin had lobbied noisily for the compulsory participation in a new Greek bailout of private lenders, many of whom stand to lose heavily if Greece defaults on its €300bn (£265bn) debts. Last year’s first Greek bailout, part-funded by European taxpayers, was hugely unpopular in Germany, and Merkel was keen to send a message to voters that not just they, but also the banks, would be paying this time around. Earlier this month, European Union finance ministers were said to be considering a plan in which private creditors possessing Greek state bonds would be asked to cover €20bn – €35bn of the costs . As Europe’s paymaster, Germany had called for Greece’s private creditors to swap their bonds for new ones with maturities that are seven years longer, but encountered fierce resistance to those plans from France, the European central bank and European commission. France in particular was adamant that trying to force private creditors into any Greek deal would be dangerous for the markets. On Thursday, the head of the eurozone, Jean-Claude Juncker, said that imposing losses on investors could trigger a European version of the Lehman Brothers bank collapse – a so-called “credit event”. “It’s a really ugly situation. The [German] idea is dangerous. It could provoke the gravest risk, that all three rating agencies declare a credit event and then there are big contagion risks for other countries,” he said . Merkel’s meeting with Sarkozy on Friday morning in Berlin was the first face-to-face meeting between the two leaders in seven very rocky months in Franco-German relations. On Wednesday, the French ambassador to Germany, Maurice Gourdault-Montagne, told a select group of German journalists that Berlin pays too little attention to its ties with Paris. The ambassador suggested Merkel did not give Sarkozky enough face time, pointing out that the last chancellor, Gerhard Schröder, agreed to more one-on-one meetings with his French counterpart when he was in power . But at Thursday’s press conference at the chancellery, Sarkozy heralded a “major breakthrough” with “our German friends”. In three hours of talks, he and Merkel had at least agreed that there ideally should be some involvement on the private sector in the Greece bailout, he said. The deal was based on four principles: voluntary participation, speed, no payment default and agreement with the European central bank. Both leaders also stressed that Greece had to comply with its obligations. The duo were keen to reach a consensus ahead of next week’s EU summit in Brussels, which will see European leaders try to hammer out a Greek deal. Greece Euro Currencies Euro European Union Economics Germany France Angela Merkel Nicolas Sarkozy Helen Pidd guardian.co.uk