Merkel and Sarkozy are “confident that Greece’s future is in the Eurozone,” Merkel’s spokesman, Steffen Seibert, said in the statement. But he added that Greece must adhere to a “strict and effective implementation” of the conditions underlying the bailout of the country, including tight budget-cutting measures and efforts to increase tax revenue.
Sarkozy echoed that stand in a statement, saying Greece’s budget commitments “are indispensable for the Greek economy to find the path of sustainable and balanced growth.”
The emergency teleconference was intended to reassure fearful markets about Europe’s economic direction. It comes as Greece’s ability to pay its debts — and the future of its inclusion in the euro area — have appeared more in doubt than ever.
Greece stressed that it would meet the fiscal targets it agreed to. A government spokesman, Elias Mossialos, said after the meeting that the leaders had agreed that Greece is “integral” to the euro area.
Fears of Greek default — and a resulting brush fire of debt problems spreading across Europe — have soared in recent days, and members of Merkel’s fractious coalition have gone as far to say that Greece may need to drop the euro currency. But both Merkel and Sarkozy have said that they would take strong measures to support the nation’s finances.
Earlier Wednesday, concern about the debt crisis led Moody’s Investors Service to downgrade two major French banks and place a third under review.
The French banks probably have enough capital to deal with potential losses on their Greek holdings, Moody’s said in a series of reports, but have become increasingly vulnerable to a loss of confidence by the market. American money market funds — an important source of dollars for the banks — have been shying away from both Societe Generale SA and Credit Agricole SA since the crisis intensified over the summer, Moody’s said.
The ratings company downgraded Societe Generale from Aa2 to Aa3, and Credit Agricole from Aa1 to Aa2. It said it was keeping BNP Paribas at Aa2 for the time being, but all three banks face continuing review.
Moody’s said it does not expect the banks to be downgraded further by more than one notch, under current conditions. But Wednesday’s move underscores the way in which Europe’s economic troubles — originally a political problem — have started to become a banking problem as well, one that could spread outside the euro zone to the United States or Asia, or here to Russia.
The downgrades had been expected since last week but were not as severe as first thought. European and American markets were up on the hope that the crisis might be averted after all. On Wednesday stock prices rose in France and throughout Western Europe in response. France’s CAC 40 index closed up 43 points, or 1.9 percent, while Britain’s FTSE 100 rose 53 points, or 1.02 percent. Germany’s DAX surged 174 points, or 3.4 percent.