Berlin dampened expectations yesterday that an upcoming EU summit will finally force the debt crisis genie back into its bottle, amid warnings that market instability is damaging the real economy.
Financial markets and the euro both rallied early yesterday on optimism that European Union leaders were set to hammer out a final deal to rescue debt-laden Greece from bankruptcy in Brussels on Sunday.
But comments by German Finance Minister Wolfgang Schäuble and Chancellor Angela Merkel’s top spokesman, Steffan Seibert, gave the markets a cold shower.
Speaking in Duesseldorf, Schäuble said that while EU leaders were set to “provide cover for uncertainty in financial markets”, a permanent solution was unlikely to arise out of Sunday’s summit.
He also warned that markets must rapidly stabilise if Europe were to avoid damage to its real economy.
EU leaders are likely to agree on forcing banks to recapitilise as part of a comprehensive package to fight the growing debt crisis which is undermining the stability of the euro.
Mr Seibert, speaking at a regular government news conference, also warned that measures agreed by leaders in Brussels would not immediately solve the crisis.
“Dreams that everything will be resolved and dealt with by next Monday cannot be fulfilled,” he said.
Decisions to be reached on Sunday will be part and parcel of “important working steps on a long path that will reach into next year,” he added.
He declined to go into details, saying that EU governments were still working on the details of a deal.
But Mrs Merkel will address parliament later in the week, probably on Friday, to outline her government’s priorities, he said.
London’s benchmark FTSE 100 index closed down 0.54 per cent, Frankfurt’s DAX 30 lost 1.81 per cent and in Paris the CAC 40 dropped 1.61 per cent.
The euro reached an intra-day high of $1.3914, before tumbling to $1.3763. That was down from $1.3881 in New York on Friday.
On Wall Street, the Dow Jones Industrial Average slid 1.39 per cent in midday trade, the S&P 500 1.39 per cent and the tech-heavy Nasdaq 1.54 per cent in early trade.
Under intense pressure from their international partners at a meeting of G20 finance ministers and central bankers in Paris at the weekend, Europeans pledged to deliver at this weekend’s summit.
French Finance Minister Francois Baroin said “the results of the October 23 summit will be decisive.”
German officials are usually more cautious in their statements, while the tone elsewhere in Europe was more urgent.