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France, Germany Show Solidarity on Greek Economy


French President Nicolas Sarkozy and German Chancellor Angela Merkel brief the media at a news conference after their meeting at the chancellery in Berlin, June 17, 2011

French President Nicolas Sarkozy and German Chancellor Angela Merkel brief the media at a news conference after their meeting at the chancellery in Berlin, June 17, 2011

The leaders of France and Germany signaled Friday they want to find a quick solution to the economic crisis in Greece. In Greece, the prime minister reshuffled his Cabinet and replaced his finance minister.

Speaking in Berlin, German Chancellor Angela Merkel and French President Nicolas Sarkozy said the stability of Europe's single currency, the euro, is their top priority.

Greece, a nation in the eurozone and part of the single currency, is in major debt. It needs a multi-billion-dollar loan from its euro neighbors in order to avoid defaulting on that debt.

France and Germany had been at odds over whether private holders of Greek bonds should be involved in a Greek rescue package.

But on Friday, Merkel said the two countries were on the same page. She said that private investors should participate only on a voluntary basis. She added that mandatory participation does not have a legal basis.

Analysts say this is a softening of Germany's position, which they say had been leaning towards forcing losses on private creditors.

President Sarkozy said Friday that France and Germany are committed to defending the euro. He added that their program has to be put in place quickly.

It is a sign that European countries may be moving closer to a deal to help Greece out of its immediate financial straits.

But Mark Weisbrot, co-director of the U.S.-based research group the Center for Economic and Policy Research, says a bailout in its current form is not going to help Greece in the long run.

"Greece needs to get out from under a big part of that debt, a big part," said Weisbrot. "Because otherwise, if you have a settlement and there is just a restructuring that allows some payments to be made later and none of the principles to be reduced, for example, then you're just going to end up in the same situation a year or two down the road."

The European Union and the International Monetary Fund (IMF) have made tough austerity measures a condition of any bailout.

Those measures are adding to social unrest in Greece and putting major political pressure on the leading Socialist party. On Friday, a new finance minister was appointed amid a reshuffle of the Cabinet.

And on Wednesday, tens of thousands of people turned out in the streets to protest against tax hikes and spending cuts.

Weisbrot says austerity is not the key to improving Greece's economic situation, and, in his opinion, Greek citizens are right to battle the policy.

"I think what they're doing right now is important," Weisbrot added. "They're in the streets and that's where the only pressure is coming from. And I think they should demand that their government not accept any terms that doesn't get the economy growing immediately."

The IMF said Friday that sovereign debt troubles in Greece and other eurozone countries are putting the global economic recovery at risk.

Speaking in San Paulo, Brazil, the IMF's research director, Olivier Blanchard, said policymakers have to act now to make the financial system more robust.

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