German chancellor Angela Merkel and French president Nicholas Sarkosy sided together to demand that Italian prime minister Silvio Berlusconi reform his country’s economy. At the same time, Herman van Rompuy, president of the European Council, backed up the demands, adding that non-eurozone leaders, including David Cameron, would be invited to Wednesday’s meeting.
There is little love lost between Cameron and Sarkosy with the latter said to have rounded on Cameron’s criticism of the way he is mishandling his own austerity measures.
Relations soured further between France and Italy as Berlusconi nominated an Italian to fill the Mario-Draghi-sized hole at the European Central Bank as Draghi is set to take on the role as president of the ECB next week. This will leave France with no representation on the ECB’s main committee as soon as current president Jeane-Claude Trichet steps down.
Germany and France have reportedly agreed on little throughout the various discussions over Europe’s debt problems and tensions grew further as France wants the ECB to guarantee the bailout fund and Germany does not. It would appear that Germany has won out as one positive conclusion to the talks is the bailout fund will not be turned into a bank, allowing it to then borrow from the ECB.
As a result of this, banks will have to raise more than €100bn of new capital themselves (£87bn).
Elsewhere over the weekend, agreement was made that the European Financial Stability Facility (EFSF) will be given greater firepower – although the details have still to be confirmed – and lenders to Greece should also prepare to take a haircut of closer to 50% than the 21% figure already put forward.
