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18 October 2011

WSJ: Merkel tempers EU summit hopes

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As investors look towards a Sunday meeting of European leaders for a sweeping solution to Europe's debt crisis, a spokesman for German Chancellor, Angela Merkel, on Monday warned against hoping that all the eurozone's debt woes would be resolved by then.

Ms Merkel's spokesman, Steffen Seibert, said a package of measures would be agreed on at the European Union summit in Brussels on Sunday, but "the chancellor reminds  that the dreams that are emerging again, that on Monday everything will be resolved and everything will be over, will again not be fulfilled". Ms Merkel has said repeatedly in recent months that solving the eurozone debt problem will require a long-term process of reforms at the European and national levels, despite the "yearning" of many investors and commentators for a single dramatic announcement that would remedy the situation.

German Finance Minister, Wolfgang Schäuble, said that he expects EU leaders to agree on new measures to combat market uncertainty at the coming summit—including a higher capital ratio for the 91 European banks that were stress tested in July. Mr Schäuble, at a conference in Düsseldorf, said he assumes EU leaders will agree to a Tier 1 capital ratio—the ratio of a bank's core equity capital to its total risk-weighted assets—of 9 per cent for the stress-tested banks. This summer's stress tests set the threshold at 5 per cent. But Mr Schäuble, too, cautioned that the summit is unlikely to produce a permanent solution to the debt crisis. Although Paris and Berlin stressed that details on each of these points still needed to be worked out, and that the deadline for a comprehensive plan is the Cannes summit of G20 leaders in early November, the cautious comments by Ms Merkel's spokesman disappointed financial markets. Mr Seibert said the German chancellor considers what has been achieved so far as "important steps on a long journey, a journey that will certainly continue well into next year".

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© Wall Street Journal

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