A banner depicting German Chancellor Angela Merkel and French President Nicolas Sarkozy is fixed at the front of an apartment house in Berlin's Mitte district on 18 October 2011 (Tobias Schwarz, Reuters)

A LAST-MINUTE attempt by French and German leaders to bridge their differences ahead of a crucial weekend European summit ended in failure on October 19, prolonging uncertainty over conflicting plans for a Greek debt writedown.

 

French President Nicolas Sarkozy flew to Frankfurt late on October 19 for talks with German Chancellor Angela Merkel and other eurozone and IMF leaders on the occasion of a farewell event for outgoing European Central Bank president Jean-Claude Trichet.

 

But after his failure to break the deadlock with Merkel over way to boost the financial prowess of the 440bn euro European Financial Stability Facility (EFSF), Sarkozy returned to Paris without speaking to the media.

 

According to the French side, the EFSF must become a bank in order to leverage a higher funding capacity of up to 2 trillion euros in order to cushion the blow on Greek and European banks from a deep haircut of Greek debt and assist in their recapitalisation.

 

Berlin opposes any such plan, favouring instead an EFSF insurance role for troubled eurozone bonds.

Later on October 20, another dispute arose in Brussels between the European Commission and the International Monetary Fund over the former’s projections about the sustainability of Greek debt.

 

The IMF appeared to be resuming its hard line on giving its approval to the long-delayed sixth tranche of EU-IMF bailout aid to Athens, if eurozone leaders fail to agree on a coherent plan that will make the Greek debt sustainable.