German Chancellor Angela Merkel expects a package of measures towards solving the euro-zone debt crisis to be agreed on Oct. 23, but warned against hoping that all of Europe's debt woes would be resolved, her spokesman said Monday.
Spokesman Steffen Seibert said a "package" of measures would be agreed upon at the European Union summit in Brussels this coming Sunday, but "the chancellor reminds [everyone] that the dreams that are emerging again, that on Monday everything will be resolved and everything will be over, will again not be fulfilled," Mr. Seibert said.
The comments, which saw stock markets in Europe and the U.S. pare gains, echo those of German Finance Minister Wolfgang Schäuble, who earlier Monday said he expects European leaders to agree on new measures to combat market uncertainty at the coming summit—including a 9% Tier-1 capital ratio for the 91 banks that underwent stress tests in July—but cautioned that a permanent solution to the debt crisis is unlikely to come out of the summit.
At the Group of 20 meeting of finance ministers and central bank governors last weekend, Germany and France said that they had agreed on broad outlines of a package that included recapitalization of systemically relevant European banks and leveraging the euro zone bailout fund to give it more firepower. Agreements between Europe's two biggest economies was expected to set the stage for a broader European agreement on resolving Greece's debt woes, creating a powerful bailout mechanism, and shoring up European banks against sovereign default.
Although Paris and Berlin stressed that details on each of these points still needed to be worked out and that the deadline for a comprehensive plan is the Cannes summit of G20 leaders, financial markets were stunned by the appparently cautious comments by Ms. Merkel's spokesman. Ms. Merkel's comments were made last week—before the G20 meeting—at a meeting of IG Metall trade union members.
Ms. Merkel has repeatedly said recently that the euro zone debt crisis will take years to resolve, but there has been optimism that Germany and France were finally moving toward a comprehensive solution to the crisis.
Mr. Seibert said the chancellor considers what has been achieved so far as "important steps on a long journey, a journey that will certainly continue well into next year."
Meanwhile, speaking at a conference in Düsseldorf, Mr. Schäuble said he "assumes" European Union leaders will agree a Tier-1 capital ratio—the ratio of a bank's core equity capital to its total risk-weighted assets—of 9% for the stress-tested banks.
European leaders will take steps to "provide cover for uncertainty in financial markets", although a permanent solution is unlikely, Mr. Schäuble said.
The EU is under pressure to present a solution to its debt crisis at its summit on Oct. 23. But it faces resistance from banks over plans for larger write-downs on Greek government debt and a forced recapitalization of banks.
The European Commission last Wednesday outlined proposals to shore up European banks in the face of the region's escalating debt crisis. Those with inadequate capital will need to raise it from private sources or the government, the commission said.
The European Banking Authority, the pan-European Union banking regulator, suggested that the threshold for core Tier-1 capital requirements could be raised to 9%, according to a confidential communication to national banking authorities, an EU official said last Wednesday. This summer's stress tests of European banks set the threshold at 5%.
Mr. Schäuble warned that the euro zone's debt crisis must be resolved quickly in order to reduce the impact on Germany's economy.
"We need a durable solution for Greece," which will involve a reduction of Greece's debt, Mr. Schäuble said.
However, some measures to resolve the crisis, including changes to the EU's treaties, will take longer to resolve, he said.
Germany's constitutional "debt brake" is important for the stability of the euro zone, and a similar agreement is needed at a European level, the finance minister added.
Germany's "debt brake" law forces the federal and state governments to virtually eliminate their structural budget deficits over the next five to ten years. Germany's government has no hidden agenda to increase inflation, Mr. Schäuble said.
Separately, European Council President Herman Van Rompuy, who will preside over Sunday's meeting of leaders from the 27-nation European Union, said European leaders are working on the "comprehensive package" that was discussed by leaders over the past weekend.
"For weeks the commission and I have already been working on a comprehensive package to create more confidence in the financial sector and in the sovereign bonds of countries under pressure," he said alongside President José Manuel Barroso, president of the European Commission, the executive branch.
"Guaranteeing financial stability is the key to restoring the economy," said Mr. Van Rompuy,
Mr. Barroso lifted hopes for the Oct. 23 meeting despite a warning Monday from the German government against expectations that the euro-zone crisis will be solved in one weekend.
"I believe the European Council of this weekend will be critically important," Mr. Barroso said.
Leaders hope to break the deadlock on a number of key issues including a second Greek bailout package, a plan to recapitalize the banks and a possible leveraging of the region's bailout fund.
Mr. Van Rompuy said the private-sector contribution to the proposed second Greek bailout package is an "exceptional" measure, despite Mr. Barroso's proposal last week to move up the launch of the bloc's permanent bailout mechanism to mid-2012. Asking private-bond holders to share the pain of bailing out troubled euro-zone countries is a key feature of the new vehicle.
Messrs. Van Rompuy and Barroso said that euro-zone nations with high debt burdens can't walk away from austerity efforts and other reforms to reduce the imbalances between the stronger and weaker economies in Europe.
However, Mr. Van Rompuy said there is a need for "growth-friendly" austerity in the EU and that efforts to direct EU economic assistance towards troubled economies are important.
Mr. Barroso reiterated his call for a tax on financial transactions, also saying "we need growth in Europe."
"We are doing everything we can to mobilize and front-load structural funds."
Mr. Barroso went on to say the commission isn't seeking to punish the banks and it wants a strong financial sector in the EU. But he accused the banks of behaving irresponsibly in the past and said some of the financial sector's behavior was of a "criminal nature."
The EU is set to propose this week minimum punishments, according to a document seen by The Wall Street Journal.
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