Eurozone Crisis: Could German/French rift break eurozone apart?

20th October 2011

The last thing anyone needed was for Germany and France to split over the Eurozone crisis. Since the invention of the European Economic Community, let alone the creation of the Euro, the two countries have guided the EU. Could they now break it apart?

A split now in the midst of a crisis would be very bad news all round but how serious is it?

Speigel quotes the French finance minister Francois Baroin.

He told the magazine – "You know the French position and we are sticking to it. We think that clearly the best solution is that the fund has a banking license with the central bank, but everyone knows about the reticence of the central bank. Everyone also knows about the Germans' reticence. But for us that remains … the most effective solution."

Speigel adds that senior officials in the German government say the country is opposed to the French solution. Berlin instead favours an approach that would turn the backstop into a kind of insurance fund providing guarantees to public and private investors by covering the first 20 to 30 per cent losses on their investments in state bonds. Such a move could allow the fund to martial aid worth up to €1 trillion. The German government also enjoys the ECB's support."

 The Telegraph adds that the French are opposing this aspect of the deal. It says: "France is resisting German pressure to write down Greek debt held by private investors by between 50 to 60pc, because it fears that the exposure of the French financial sector to Greece's sovereign bonds could costs billions in bank recapitalisation, jeopardising the country's AAA rating.

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