Merkel Said to Tell Lawmakers EU Summit Won’t Be Final Step in Debt Crisis

By Rainer Buergin and Tony Czuczka - Oct 19, 2011 12:45 AM GMT+0700

German Chancellor Angela Merkel said that a European Union summit in five days will mark an “important step,” though not the final one in solving the euro-area sovereign debt crisis.

“These sovereign debts have built up over decades, so they won’t be ended with one summit,” Merkel told reporters in Berlin late today. While European officials recognize their responsibility to stop the crisis, “this will require tough, long-term work.”

The comments marked the second time in two days that Merkel sought to lower expectations that the European crisis-fighting effort would climax at the Oct. 23 meeting in Brussels, as international officials are advocating.

Earlier today, she told a meeting in Berlin of her Christian Democratic caucus that officials from the 17-nation euro area are moving millimeter by millimeter on solving the crisis, an official who attended the talks told reporters. He spoke on condition of anonymity because the meeting was private.

“It is far from clear that the summit will deliver a package that is viewed as broad and deep enough,” David Mackie, chief European economist at JPMorgan Chase & Co (JPM), said in a note today. “Indeed, comments out of Germany appear to be trying to dampen expectations of what the summit will deliver.”

Merkel, speaking after talks with Uruguayan President Jose Alberto Mujica, said the summit “is an important step, but that further steps will follow again after that.”

‘Relevant’ Decisions

“Relevant, important decisions” will be taken at the gathering, including a “clear commitment” that the prosperity of many parts of the world depends on Europe solving the debt crisis, she said.

At her party’s meeting, Merkel said bank recapitalization will be discussed at the EU summit and permanent surveillance similar to the so-called troika of the International Monetary Fund, European Central Bank and European Commission is conceivable to oversee countries that tap the euro rescue fund, the official said.

The euro declined 0.1 percent to $1.3726 at 7:27 p.m. in Frankfurt, reversing earlier gains of as much as 0.4 percent. France’s 10-year bond yield climbed to the highest compared with Germany’s in almost 20 years after Moody’s Investors Service said the nation’s Aaa credit rating is under pressure due to the region’s debt crisis.

Investors’ Share

While the contribution by investors to Greece’s next bailout “will need to be higher” than the 21 percent reduction in net present value proposed in July, German banks’ recapitalization needs are “manageable,” said Volker Kauder, the floor leader of Merkel’s Christian Democratic Union.

“A recapitalization of banks has to be achieved in order to be prepared for all eventualities, so that there are no problems,” Kauder told reporters. “We know from preliminary information that this will be within a range that is no problem for those German banks that might be affected. We can be very calm and relaxed.”

Merkel’s spokesmen Steffen Seibert said yesterday that EU leaders won’t provide the complete fix that global policy makers pushed for at a Group of 20 gathering three days ago.

Merkel has made it clear that “dreams that are taking hold again now that with this package everything will be solved and everything will be over on Monday won’t be able to be fulfilled,” Seibert told reporters in Berlin. The search for an end to the crisis “surely extends well into next year.”

G-20 finance ministers and central bankers concluded weekend talks in Paris endorsing parts of Europe’s emerging crisis plan. They set the Oct. 23 meeting of European leaders as the deadline.

“Quite frankly, Europe’s response over the past year has been disappointing,” Canadian Finance Minister Jim Flaherty said in a speech yesterday in Dublin. “This is the world’s most immediate and pressing problem,” Flaherty said, according to a prepared copy of the speech, and “is threatening to bring the world to the verge of another recession.”

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net