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"The world is looking to Europe," said the Chancellor, speaking in the German Bundestag. Europe must come out of the sovereign debt crisis stronger than before, just like Germany. "If the euro fails, Europe will have failed," she warned.

 

Angela Merkel looked back at the financial crisis that rocked the world three years ago. The German Bundestag and the government pulled together to prevent any serious recession in Germany. A lot was demanded of the people of Germany. But Germany pulled through, and emerged from the crisis stronger than before. Unemployment is today lower than at any time over the last twenty years.

 

Tackling the root causes

 

Today, we must make provisions for the future. This means tackling the root causes of the problems we are currently facing. The Chancellor cited excessive sovereign debt and the lack of competitiveness in individual states as major problems.

 

The economic and currency union is currently facing its greatest test to date, said Angela Merkel. Consultations at European level have made good progress, but the Chancellor nevertheless tried to temper unrealistic expectations of today’s European Council summit meeting. The reforms that have been ignored over a period of many years cannot be remedied overnight, she said.

 

Helping Greece to its feet

 

Angela Merkel praised the efforts made by Ireland, Portugal and Greece. The people deserve our respect for what they have achieved. Germany aims to help Greece find a way out of the debt crisis. The Chancellor stressed that, "We want to see Greece back on its feet again soon".

 

She advocated that private creditors be involved to a greater extent than already laid out in the July agreements in a second rescue package for Greece. The aim must be to help Greece reduce its level of debt by 2020 to 120 percent of the country’s economic output. This will only be possible if private creditors are involved to a significantly greater extent.

 

Nevertheless care must be taken to ensure that the debt crisis does not spread to other countries. A “firewall" is needed to prevent Greece’s problems affecting other euro-zone states.

 

Amending the European Treaties

 

The Chancellor pressed for amendments to the European Treaties to ensure the medium- and long-term stabilisation of the euro zone. By December Herman von Rompuy, President of the European Council, is to submit proposals to better anchor a culture of stability. It must be possible, for instance, to intervene in countries that repeatedly infringe the provisions of the Stability and Growth Pact. 

 

Angela Merkel also reaffirmed that she will be working for the introduction of a financial transaction tax. The next opportunity will be at the G20 summit meeting to be held at the beginning of November in Cannes. 

 

Maximising the euro-zone rescue fund

 

Germany will not agree to any participation of the European Central Bank in the strategies to resolve the euro debt and banking crisis. All proposals of this sort have been shelved, stressed the Chancellor.

 

She continued that the risk involved in "maximising" the euro-zone rescue fund is acceptable. It would indeed be unacceptable not to take the risk. After carefully studying all proposals, it has been concluded that no better option is available. Germany’s share of the 440 billion euro EFSF remains unchanged at 211 billion euros. This is the sum guaranteed by the euro-zone states as a whole.

 

Angela Merkel thanks members of the German Bundestag for their support

 

The Chancellor thanked the members of the German Bundestag for their support. The parliamentary groups of the FDP, SPD and the Greens agreed to a joint draft resolution for the Bundestag debate. The resolution calls on the government to ensure that the EFSF funds are used to maximum effect. The government must also ensure the total sum guaranteed for the EFSF.  

 

Angela Merkel made it quite clear that the euro-zone states would initially be adopting a fundamental political resolution at the summit meeting in Brussels. Once the guidelines exist for ensuring greater efficiency of the fund, the German Bundestag will naturally be called on to deliberate on these.   

 

With a convincing majority of 503 of the 596 votes cast, the German Bundestag supported a mandate for the Chancellor, to negotiate the beefing up of the euro-zone rescue fund, the EFSF.

 

This evening the heads of state and government of all 27 EU member states are meeting. This will be followed by deliberations of the 17 euro-zone states on measures to stabilise the euro and tackle the sovereign debt crisis.

The main points on the agenda are new financial assistance for Greece, the involvement of banks in the costs of the rescue action and a strengthening of the EFSF crisis fund for struggling euro-zone states.

The heads of state and government of the euro zone intend to request more detailed optimisation models for the euro-zone rescue fund EFSF. One model aims to keep euro-zone states coming under pressure on the market and to partly guarantee new government bonds to this end. Another model would use a special purpose vehicle to spread the risk between public funds handled by the euro-zone rescue fund EFSF and funds from other sources, in particular from private investors. The two models are not mutually exclusive. They are to be discussed with the parties involved and then fleshed out.