Germany’s has lowered expectations of a breakthrough in the euro zone’s sovereign debt crisis at next weekend’s summit of European Union leaders.
Financial markets have risen in the last week on hopes that the 27 EU heads will agree on a comprehensive plan.
But German Finance Minister Wolfgang Schäuble said while European governments will adopt a five-point plan to address the turmoil it is wrong to expect a miracle cure from the summit.
“We need a long-term solution for Greece, or at least a solution of which we can say that it could work over a longer period of time. And for that, Greece can not avoid a reduction of its debt. Everyone knows that,” Schäuble said.
There is a lot of pressure on the euro zone leaders after a meeting of G20 finance chiefs at the weekend.
They basically said that if Europe fails to deliver on getting its debt crisis under control the global economy is in deep trouble.
The debt crisis which began with Greece two years ago now risks engulfing much larger economies and there is growing discontent with Europe’s slow and piecemeal response.
European leaders are in a race against time to convince banks to accept “voluntary” writedowns of up to 50 percent on their Greek debt.
They are also trying to agree on a plan for recapitalising financial institutions that are at risk from the deepening crisis.
If Greece were only to repay half of what it borrowed, the banks would need to raise billions to boost their capital or reserves of cash.