Sarkozy Urges Compromise on Debt

France's President Nicolas Sarkozy urged European Union leaders to find a compromise on Greece's debt crisis amid concerns that further squabbling over the issue could harm the credibility of the euro area.
On the eve of a planned tête-à-tête lunch with German Chancellor Angela Merkel for crisis talks on the euro, Mr. Sarkozy said the priority should be to protect the common currency, which has been called into question because of Greece's heavy debt burden.
"I call on everyone to show the necessary spirit of responsibility and sense of compromise, on which Europe has been built," Mr. Sarkozy said in a speech at a farmers' conference in Paris. "We must defend out common currency and defend our European institutions."
For weeks, Germany and the European Central Bank have been at loggerheads on how to restructure Greece's debt. Ms. Merkel has made clear that she wants private holders of Greek debt to help shoulder part of the cost of any debt restructuring by agreeing to delay their right to repayment by up to seven years.
The ECB is worried that such a solution would cause investor panic by sending a shockwave equivalent to that of the September 2008 collapse of U.S. bank Lehman Brothers. Instead, the ECB has said it would favor a softer arrangement under which private investors would commit to buying newly issued Greek bonds when the ones they have in hand come due.
In this rare public dispute pitting Berlin against the ECB, France has sided with the central bank, saying that Germany's proposed solution would likely be regarded as a default by credit rating agencies, which would shake the whole euro zone.
Mr. Sarkozy has so far failed to convince Ms. Merkel to tone down her demands that private investors, and not just EU taxpayers, suffer from the consequences of any Greek debt restructuring.
When they meet on Friday, Ms. Merkel is unlikely to back down and side with Mr. Sarkozy's view, since she faces a struggle to win parliamentary acceptance for a new Greek bailout if bondholders are let off the hook.
Following the leaders' meeting in Berlin, EU finance ministers are expected to make another attempt to reach a compromise on how to involve Greece's bondholders in a new aid package when they meet in Luxembourg on Sunday and Monday.
The continued uncertainty pushed French banks' share prices lower on Thursday again—having already fallen on Wednesday after Moody's Investors Service warned it may downgrade BNP Paribas SA, Société Générale SA and Crédit Agricole SA because of their high exposure to Greece.
All three banks have said recently that an eventual restructuring of Greek sovereign debt would be manageable, and analysts say they would suffer only small declines in the capital ratios used to measure their financial strength.