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European Council and Euro Area summit

Publié le October 27, 2011
Press conference given by Nicolas Sarkozy, President of the Republic (excerpts)
Brussels, October 27, 2011
Euro Summit Statement -Brussels, October 26, 2011

Ladies and gentlemen,

Following a long night of negotiations we’ve just concluded the Euro Area summit, which has enabled us – at least, we think so – to adopt elements of a comprehensive, ambitious and credible response to the crisis the Euro Area is undergoing.

First of all, we found a lasting solution to the Greek crisis. In exchange for very strong commitments, Greece will receive a new €100 billion package, and we agreed on private sector involvement enabling the ratio of Greek debt to national wealth to be brought down to 120% of GDP by 2020. Let me remind you that Greece’s debt ratio is currently 165%. This will be done through a voluntary agreement with the private creditors, the parameters of which we discussed with their representatives.

Thus – as France had been calling for from the outset – we ruled out the prospect of a Greek default. But the private creditors wrote off half the debt they hold. That represents an outlay of €100 billion for them. In order to reach this agreement with the private sector, the Euro Area states are ready to make available €30 billion in private funds to finance safeguards for the private sector. As you can see, this agreement goes well beyond the one envisaged on 21 July, and it received support from all the institutions: the IMF, the ECB and the Commission.

Second very important element: the strengthening of the European Financial Stability Facility. We decided to vastly increase the use of the European Financial Stability Facility’s resources. The leverage effect will enable us to multiply by four or five the Facility’s available resources. So there will indeed be a leverage effect, and we estimate this potential at being four or fivefold.

Moreover, we gave the European institutions a mandate to enter into talks with a view to cooperating more closely with the IMF to attract more funding.

These decisions represent a major step forward in establishing powerful firewalls to prevent the crisis from spreading to other Euro Area member states, and we’re convinced, furthermore, that the ECB is determined to avoid malfunctions in the financial and monetary markets, as Mario Draghi himself, the future President, also said very clearly today.

We also put in place a second firewall by asking the European banks to increase their own funds. They’ll have to “mark to market” sovereign debts and achieve capital targets of 9% of own funds.

Finally, we established the Euro Area economic government in concrete form. The Euro Area summit will be held at least twice a year. All the Euro Area states will have to adopt a Golden Rule by the end of 2012, preferably at constititional level. And we’ll elect a president of the Euro Area.

So there you are, ladies and gentlemen; these are extremely weighty decisions no one could have imagined even a year or a year and a half ago. And if I had to sum things up in a few words, France, from the outset, called for an economic government of the Euro Area and said that this economic government should consist of a meeting of heads of state and government. This is what was decided. Let me remind you that up until just two years ago there had never been a summit of Euro Area heads of state and government.

France called for integration, the convergence of economic, budgetary and fiscal policies. This is what we’ve decided.

As regards Greece, France wanted to avoid a Greek default, which would have been terrible, when we remember the aftermath of the Lehman Brothers bankruptcy. This has been done.

Finally, France wanted a leverage effect for the EFSF. We’ve decided this too.

Moreover, Mario Draghi’s statements yesterday on the eve of the summit show the extent to which the ECB supports the initiatives taken.

I believe I can say that these are extremely important decisions, taken by 17 countries. The complexity of the issues and the need to get everyone to agree mean that it was a long night of negotiations, but I believe the result will be welcomed with relief by the whole world, which was expecting strong decisions from the Euro Area. I believe we have taken those decisions. (…)./.

A global, ambitious and credible response to the crisis

The figures

- $1,400 billion: the amount by which the European Financial Stability Facility (EFSF) will boost its resources thanks to the leverage effect.

- 50%: the amount by which the private sector has agreed to reduce Greek debt.

- €106 billion: the amount by which the European banks will need to bolster their reserves.

Key points

- On Thursday, October 27, the Euro Area heads of State and government agreed on the elements of a global, ambitious and credible response to the crisis that Europe is undergoing.

- In a context of a slowdown in world growth and given the renewed tensions with respect to sovereign debts, it was necessary to strengthen the agreement of July 21 and to take new measures to support Greece and preserve the long-term stability of the Euro Area.

- Several decisive responses were therefore adopted following this summit:

- A lasting solution to the Greek crisis, with a new aid package of €100 billion and a €100 billion reduction of the debt held by the private sector.

- A strengthening of the EFSF, increasing its resources to approximately $1,400 billion (€1,000 billion) thanks to the leveraging of its available resources.

- A plan to recapitalize European banks requiring them to raise €106 billion, of which €8.8 billion will be raised by French banks.

- Lastly, since the stability of the Euro Area cannot be preserved without a strong institutional framework, we established, in concrete terms, the Euro Area economic government.

Why did we need another Euro Area summit?

- On July 21, on the initiative of Nicolas Sarkozy and Angela Merkel, the countries of the Euro Area agreed on a rescue plan for Greece, which notably provided for the reduction of Greek debt through private creditors, and the strengthening of the capacity of the European Financial Stability Facility (EFSF) to take action.

- However, since this summer, sovereign debt tensions, notably in Europe, have led to a slowdown in world growth. This resulted in a further deterioration of the economic situation of certain countries, and more generally, led to a weakening of the Euro Area.

- In this new context, it was necessary to finalize certain decisions taken on July 21 (notably the modes of intervention of the EFSF) and to go further by providing new solutions.

- This summit is not just about putting the Greek economy back on a sustainable path, we also need to ensure the long-term stability of the Euro Area. In other words, the challenge is finding a structural, ambitious and definitive solution that will allow us to resolve the crisis that Europe has been experiencing for several months now.

Responses that will rise to the challenges?

- Several decisive responses were adopted:

1/ A lasting solution to the Greek crisis.

- In exchange for very strong commitments, Greece will benefit from a new €100 billion package.

- Furthermore, since we have ruled out the prospect of a Greek default, the private creditors have agreed to voluntarily accept a 50% cut in the Greek debt that they hold, representing an outlay of €100 billion. This will make it possible to bring down the country’s debt to GDP ratio to 120%, compared with 165% today.

- In return, the Euro Area States are ready to make available €30 billion in public funds to finance safeguards for the private sector.

2/ The strengthening of the EFSF, which will act as a powerful firewall to prevent the crisis from spreading.

- We decided to leverage EFSF resources. The leverage effect will therefore allow us to enable us to increase the Facility’s available resources to $1,400 billion (€1,000 billion).

- We agreed on two intervention mechanisms, which may complement each other:

1. A form of partial credit guarantee on the debt of certain member States;

2. The creation of a financial instrument making it possible to mobilize contributions from public or private investors, notably foreign investors, in order to buy up Euro Area debt.

- At the same time, the European institutions and the EFSF were instructed to initiate discussions in order to cooperate more closely with the IMF to attract new financing.

- In addition, the ECB announced that it was ready to intervene if necessary to avoid market failures.

3/ Recapitalizing European banks

- In order to deal with current uncertainties, we put in place a second firewall by asking the European banks to achieve capital targets of 9% of own funds by June 30, 2012. Through this decision, we will considerably accelerate the implementation of the Basel III rules!

- Banks will need to raise a total of €106 billion, of which €8.8 billion will be raised by French banks.

- The banks will be stronger and will be able to continue financing the economy. We will be particularly attentive to the dividend and bonus payment policies to ensure that the banks devote their resources first and foremost to bolstering their own capital.

Beyond that, how can Euro Area governance be strengthened over the long term?

- The crisis we’re experiencing shows that the stability of the Euro Area can only be maintained within a strong institutional framework.

- That’s why, in keeping with the Franco-German proposals of August 16, we achieved a new milestone through the implementation, in practical terms, of the Euro Area economic government that President Sarkozy was the first to call for:

- The Euro Area heads of State and government will now meet at least twice a year. These summits will be chaired by Herman Van Rompuy.

- In addition, all Euro Area States will have to adopt a Golden Rule by the end of 2012, preferably at constitutional level.

In conclusion, all these measures provide a global, ambitious and credible response to the Euro Area crisis. They will allow us to take a leap forward that no one could have ever imagined a year ago!

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