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September 18, 2020

Merkel-Sarkozy pledge to ease debt crisis boosts confidence

A wave of optimism is spreading in markets on Monday trading after the deadline set by Merkel and Sarkozy for a plan to ease the European debt crisis and after upbeat jobs report from the United States, actionforex.com reports. Lately the general sentiment was spoiled with the mounting European debt woes and sluggish U.S. growth, thus with serious talks between the region’s two largest economies’ leaders and improvement in U.S. data, hopes increased that the recovery curve is rebounding.

On Sunday evening, Merkel-Sarkozy meeting that took place in Berlin came out with an agreement between the leaders among certain goals to mitigate the effect of the European debt crisis which is threatening the region’s well being. The talks included the introduction of new measures to alleviate the Greek debt dilemma, recapitalize banks capital and speed up economic coordination in the euro area, through making amendments to the Lisbon Treaty, by the end of the current month, probably before the G20 summit in Cannes on November 3-4. German chancellor Angela Merkel rallied support for her initiative last night from French president Nicolas Sarkozy, giving fresh momentum to an emergent proposal which may require a referendum in Ireland. Her alliance on this front with the French leader is likely to create political difficulty for Taoiseach Enda Kenny, who has made it clear in recent days that he does not want to reopen the pact, according to irishtimes.com.

“We will make proposals in a comprehensive package that will enable closer co-operation between euro zone countries that will include changes to treaties,” Dr Merkel told reporters before a meeting with Mr Sarkozy over dinner in Berlin last night. She and Mr Sarkozy said they had reached agreement on a plan to recapitalise the weakest euro zone banks and they set their fellow- leaders a four-week deadline to forge ahead with a package of measures to escalate the campaign against the crisis.

Talks between the European powers are to intensify in the coming days as they seek to settle a series of knotty problems which are hampering moves to escalate their campaign against the crisis. Dr Merkel has not specified what measures she wants to enshrine in the Lisbon treaty. However, officials expect that any such move would be designed to make it easier for the European authorities to impose their will on the economic policy of countries which consistently breach EU budget rules.

Europe’s leaders are also discussing the possibility that private Greek bondholders might be asked to take a larger than anticipated “voluntary” loss on their investment agreed as part of that country’s second bailout. Dr Merkel said that EU leaders would do “everything necessary” to ensure banks are strengthened. Although Mr Sarkozy said he and the chancellor were in “total agreement” on recapitalisation, senior officials have been pointing out for days that the two leaders are far apart on that question.

Dr Merkel argues that the bailout fund should be deployed to recapitalise banks only as a last resort, when the supply of private capital and state aid runs out. Sarkozy, who fears that a big state recapitalisation of French banks would compromise his country’s triple-A credit rating, has been pressing for leeway to use the fund much earlier in the recapitalisation process.

The euro is currently trading around 1.3560 versus the dollar compared with the day’s opening level of 1.3389.

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