Sarkozy: Greek euro entry a mistake

AL Jazeera English Europe
French president makes comment as stocks rally, led by banking sector, on action plan to tackle debt crisis. Last Modified: 28 Oct 2011 04:15
French President Nicolas Sarkozy said it was a "mistake" to allow Greece to enter the eurozone, comments likely to inflame tensions between EU member states just hours after a deal was reached on a bailout plan for Greece. It was a mistake to let Greece join the euro single currency when it did because its economy was not ready to form a monetary union with others in the club, Sarkozy said in an interview on Thursday. Meanwhile, world stocks surged and the euro jumped to a seven-week high against the dollar after European leaders agreed on a debt deal in Brussels aimed at resolving the two-year-old eurozone sovereign debt crisis. "It was a mistake," Sarkozy said, when asked about having Greece adopt the euro two years after the single currency was created. "Its economy was not ready," he said. Sarkozy gave a rare televised interview to explain the eurozone crisis plan agreed in Brussels the previous evening to the French electorate, six months before a presidential election. But investors reacted positively to details of the new plan, announced early on Thursday, which would increase the eurozone rescue fund to $1.4 trillion, implement a 50 per cent write-off for private bond-holders of Greek debt and recapitalise the region's banks. In France, where banks were considered especially vulnerable to a potential Greek default, the CAC index closed Thursday's session up 6.28 per cent, while Germany's DAX ended the day up 5.35 per cent and the UK's FTSE gained 2.89 per cent. On Wall Street, the Dow Jones rose more than 2.86 per cent, while the Nasdaq went up 3.32 per cent. Significant gains Banks led the way in Europe with several of the continent's biggest institutions posting huge daily gains. France's Societe Generale closed up 22.54 per cent, Credit Agricole was up 21.96 per cent and BNP Paribas gained 8.76 per cent. Germany's Deutsche Bank was up 15.24 per cent, while the UK's Barclays was up 7.13 per cent. KEY POINTS   Private bond-holders of Greek debt asked to bear 50 per cent losses on their investment   Europe's banks told to cut dividends and bonuses to strengthen their balance sheets   Planned increase in European Financial Stability Facility, the $600bn mechanism set up to provide support to eurozone economies Q&A on euro zone debt crisis Banks now, however, face the challenge of having to find $146bn to shore up their capital by the end of June. "European leaders have been accused of procrastinating, which they say made the situation worse," said Al Jazeera's Jacky Rowland, reporting from Berlin. "But the question is how in practice will it work, how will the money come into that fund. "And how are banks going to raise level of capital, which means are they are going to be lending less money to ordinary people? These all kinds of details need to be fleshed out." Greece is inundated with debt and in its third-straight year of recession. Without a "firewall" in place, analysts said its economic troubles could cross over to other eurozone economies, like those of Ireland and Portugal, and to bigger economies such as Italy. "[The] reaction has not been so good on the political side. The communists came out saying the deal means the country has gone bankrupt," Al Jazeera's John Psaropolous reported from Athens. "There is a phenomenon here in Greece called 'book cooking' on the government level, and that has happened repeatedly," he said. "There is mistrust of Greek accounting figures." George Papandreou, the Greek prime minister, has hailed the fresh deal. In a televised address on Thursday, he said: "After the battle we have won, which is of huge importance for the country ... we will continue to work intensively so that Greece becomes productive". 'Much more needs to be done' While investors responded positively to the deal, others warned that more still needed to be done to shore up the eurozone's finances. IN VIDEO EU leaders hope to prevent the spread of the debt contagion "It would be clearly premature to declare the euro crisis as fully resolved. Much more needs to be done, especially regarding fiscal consolidation," Credit Suisse Private Banking said. Analysts said the broad agreement was just the beginning and European policymakers would need to overcome several hurdles to fully resolve the debt crisis. Economist Shahin Vallee told Al Jazeera that it would take years before Greece's economy could stand on its own. "I think that it's clear that whatever comprehensive solution we have achieved over night it hasn't solved the crisis at all," he said. "It is comprehensive in the sense that it deals with several bits of the crisis - the banking part, the sovereign part, the institutional part. "But it's not comprehensive in the sense that so long as countries like Greece or Spain cannot borrow on their own, we wouldn't solve anything. And I think that's a few years down the line. We haven't even touched that."
Source: Al Jazeera and agencies
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