Germany and France in step on Greek debt crisis

German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed on a joint position to solve Greece's debt crisis on the eve of a summit convened to stamp out contagion in European bond markets.

The seven hours of talks in Merkel's Chancellery in Berlin also included European Central Bank President Jean-Claude Trichet and European Union President Herman van Rompuy, who participated by telephone.

Merkel and Sarkozy "listened" to the views of Trichet, the statement said, without saying whether Trichet, who opposes any Greek default, shares their agreed stance. As officials bicker on how to fund a second Greek bailout and stop the crisis from spilling into Spain and Italy, the yield on Greece's two-year bonds rose above 40 per cent for the first time on speculation leaders will allow the country to default.

Euro region leaders were due to gather overnight in Brussels after meetings of national government officials. Deutsche Bank chief executive Josef Ackermann and a group of senior European bankers would join government officials at the summit, Germany's Bild-Zeitung newspaper reported.

The Berlin talks took place amid growing pressure on Merkel to take charge of Europe's crisis response two days after President Barack Obama spoke to her to discuss the risk to the world economy radiating from Europe.

Euro-area government chiefs are convening for the second time in a month as they aim to break a deadlock over a new Greek rescue that has spooked investors.

While Merkel said on Tuesday the crisis could not be resolved in "one spectacular step", Greek Prime Minister George Papandreou said the summit could be a "make-or-break moment" for the region.

"We have found solutions to previous crises and we'll find a solution now as well," French Foreign Minister Alain Juppe said. "A failure would be catastrophic for the euro zone."

Belgian Finance Minister Didier Reynders said debate would focus on how to finance the package and the role of private investors, telling Le Soir newspaper it "shouldn't be difficult" to agree on a second Greek rescue worth around €110 billion ($183 billion).

The German Government expects the private sector will share some of the costs of aiding Greece, Finance Ministry spokesman Martin Kotthaus said yesterday.

Greece's sovereign-debt crisis risked contaminating the rest of the euro region even if officials averted a default, the International Monetary Fund said. Both the European Commission and the ECB "considered that a sovereign default or a credit event would likely trigger contagion to the core euro-area economies with severe economic consequences," according to an IMF staff report released two days ago. European leaders are at odds with one another and with the ECB over demands by Germany and Finland that private investors bear some of the burden of a new bailout.

European officials are considering a tax on financial institutions as one possible route to help finance a second Greek bailout.

Saving Greece
Yesterday: Germany and France agree their position in Berlin on how to resolve Greece's debt crisis.

Overnight: Summit of Euro region leaders to work out how to fund a second bailout for Greece, worth about €110 billion.

- Bloomberg