September 15, 2011, 3:16 AM EDT
By Helene Fouquet and Eleni Chrepa
(Updates euro, stocks from second paragraph, adds comment from Merkel in 11th.)
Sept. 15 (Bloomberg) — French President Nicolas Sarkozy and German Chancellor Angela Merkel said they are “convinced” Greece will stay in the euro area as they faced international calls to step up efforts in fighting the region’s debt crisis.
The euro rose after the leaders of Europe’s two biggest economies issued a statement yesterday following a telephone conversation with Greek Prime Minister George Papandreou. It erased most of those gains today. Papandreou committed to meet deficit-reduction targets demanded as a condition for an international bailout, according to statements from governments in Berlin, Athens and Paris.
European governments are aiming to ratify a July 21 agreement to bolster the euro region’s bailout fund and extend a second rescue to Greece. Investor skittishness over the spread of the debt crisis has raised banks’ funding costs and roiled markets worldwide.
“I am skeptical that this will help to reassure markets,” Tullia Bucco, an economist at UniCredit Global Research in Milan, said of the leaders’ statement. “The road to the implementation of the second aid package is still quite long and may prove bumpy.”
The euro was up 0.1 percent to $1.3731 at 8:43 a.m. in Berlin, as futures on the Euro Stoxx 50 Index added 1.2 percent.
Treasury Secretary Timothy F. Geithner will travel to Wroclaw, Poland, to attend a session for the first time of the European Union’s Economic and Financial Affairs Council that begins tomorrow. Chinese Premier Wen Jiabao yesterday called on other countries to “put their houses in order.”
Underscoring divisions in Europe, European Commission President Jose Barroso said he was close to proposing options on joint euro-area bond sales, putting officials in Brussels on a collision course with Germany over steps to contain the sovereign debt crisis.
“The commission will soon present options for the introduction of euro bonds,” Barroso told the European Parliament yesterday in Strasbourg, France, prompting applause from lawmakers who have backed the idea and a swift rejection from officials in Berlin. “Some of these options could be implemented within the terms of the current treaty; others would require treaty change.”
In the three-way telephone call, Papandreou committed to enacting policies demanded by the EU and International Monetary fund to keep the bailout funds flowing. Sarkozy and Merkel “are convinced that the future of Greece is in the euro zone,” the French statement said.
The Greek Cabinet this month endorsed measures to help meet deficit targets of 17.1 billion euros ($23.6 billion) in 2011 and 14.9 billion euros in 2012, covering a 2 billion-euro shortfall for this year that has been exacerbated by a deepening recession.
The fulfillment of Greece’s adjustment program is “more than ever” essential and is a condition for the payment of further aid tranches, Merkel said in the call, according to an e-mailed statement from her chief spokesman, Steffen Seibert.
Papandreou said Sept. 10 that the government’s top priority is “to save the country from bankruptcy” and said he would do whatever is necessary to meet targets.
Putting austerity programs into place “is indispensable to establish sustainable and balanced growth in Greece,” according to the statement issued in Paris. “The success of the Greek plan will provide stability to the euro zone.”
–With assistance from Natalie Weeks and Maria Petrakis in Athens, Catarina Saraiva in New York and Jeff Black in Frankfurt. Editors: James Herting, Craig Stirling
To contact the editor responsible for this story: James Hertling at [email protected]