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France's President Nicolas Sarkozy and Germany's Chancellor Angela Merkel. (Francois Lenoir/REUTERS)
France's President Nicolas Sarkozy and Germany's Chancellor Angela Merkel. (Francois Lenoir/REUTERS)

Euro zone leaders to hold crisis talks Add to ...

President Nicolas Sarkozy of France and Angela Merkel, German chancellor, will hold an urgent conference call on Friday with José Luis Rodríguez Zapatero, the Spanish prime minister, to agree a co-ordinated response to the market turmoil.

Plans for the call were confirmed by the chancellor’s office in Berlin, after it was announced late on Thursday night by the Elysée palace.

There was no immediate indication about the possible options that the leaders might discuss, nor whether Silvio Berlusconi, the Italian prime minister, would also be included. Both Italy and Spain have come under pressure in the financial markets, with yields rising sharply on their government bonds.

The initiative for the call came from France, and officials were seeking to arrange a time during the afternoon when all three leaders will be available. Ms Merkel is currently on holiday in the Dolomites.

Germany remains very skeptical about a call from José Manuel Barroso, president of the European Commission, for emergency action to increase the size of the €440bn European financial stability facility, the euro zone’s rescue fund.

Philipp Rösler, economy minister and vice-chancellor, described Mr. Barroso’s letter to European heads of government as “not timely”, coming only two weeks after a eurozone summit agreed on strengthening the EFSF, but not on increasing its size.

However, there is clearly concern in Berlin at the continuing market turmoil, both in bond and equity markets.

Renewed bond-buying by the European Central Bank on Thursday failed to calm the situation, after it emerged that the bank was only in the market for Irish and Portuguese debt. There was also concern that the ECB decision was not unanimous, with the German Bundesbank, among others, thought to have opposed the move.

The dilemma for the euro zone leaders is that the measures they have agreed to allow the EFSF to buy bonds in secondary markets, and to issue precautionary loans to countries with liquidity problems, cannot be enacted before the end of September. They have to be legally drafted, and then submitted to national parliaments for approval.

The idea in Berlin was that ECB intervention would bridge the “summer gap” in the sovereign debt market, when turnover is thin, giving time for the EFSF rules to be finalised.

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