Top of the Agenda: France, Germany Reach Greek Deal Ahead of Summit from the CFR 7/21

Top of the Agenda: France, Germany Reach Greek Deal Ahead of Summit

German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed Wednesday to a financial rescue plan (DeutscheWelle) for Greece, ahead of today's emergency eurozone summit on the continent's ongoing sovereign debt crisis.

During a late-night meeting in Berlin, Merkel convinced Sarkozy to drop his plan to help fund a €115 billion EU-IMF Greek bailout--the country's second--with a bank tax. However, the leaders agreed to involve private creditors (FT) in a rescue package through a bond swap or rollover plan.

Senior EU officials conceded that such a plan could lead to a selective default (WSJ) for Greece, a route the European Central Bank--whose president, Jean-Claude Trichet, was also present for part of the Berlin meeting--has forcefully opposed in the past. European stocks responded nervously (Guardian), while the euro dropped in foreign exchange trading.

Meanwhile, eurozone leaders will also use the Brussels summit to discuss options for stemming sovereign debt contagion (Bloomberg) to at-risk countries like Spain and Italy.

Analysis:

There are profound reasons why the twin giants of the liberal democratic West--the United States and the EU--are both on the edge of default, writes the Guardian's Timothy Garton Ash.

The eurozone, once seen as a crowning achievement in the decades-long path of European integration, is a buffeted by a sovereign debt crisis of nations whose membership in the currency union has been poorly policed, explains this CFR Backgrounder.

With Moody's downgrading Irish and Portuguese debt to "junk" status and Italy's borrowing costs rising, U.S.-based rating agencies--still reeling from financial-crisis criticisms--are under fire from the EU for being too aggressive, though many experts say complaints are unjustified, says this CFR Backgrounder.

Eurozone leaders meeting for today's summit are unnecessarily worried about contagion to Italy, but a growing sovereign debt crisis highlights the role of politics in the markets and the need to find common, EU-wide solutions, says expert Franco Pavoncello.