German Chancellor Angela Merkel and French President Nicolas Sarkozy have sorted out their dispute over involving private creditors in a second financial rescue of debt-laden Greece, clearing the way for a long-awaited deal at an emergency summit of euro zone leaders in Brussels on Thursday.
The agreement between Merkel and Sarkozy was struck at a surprise meeting in Berlin on Wednesday night during discussions lasting more than six hours in the chancellery after several weeks of wrangling between euro zone partners over the terms of a new bailout package for Greece.
They were unexpectedly joined for more than one hour by European Central Bank President Jean-Claude Trichet, a government spokesman said.
Their decisions were taken in consultation with Herman Van Rompuy, the president of the European Council, who hosts the summit.
The meeting between Merkel and Sarkozy was hurriedly arranged during a telephone conversation on Tuesday and the leaders of Europe's two largest economies apparently wanted to demonstrate once again that they hold the key to an agreement on a major issue affecting the future of Europe.
The euro zone leaders have been under pressure in the past weeks to reach a speedy agreement on a second rescue package of about Euro 120 billion to send a strong message to increasingly nervous financial markets that they will act decisively to deal with the Greek crisis and safeguard the stability of their common currency.
A second rescue package over a year after Greece received Euro 110
Their borrowing costs soared to record levels in recent weeks as speculators began targeting them as the next candidates for a bailout.
The proposed new rescue package will ensure that Greece will remain solvent till 2014.
Merkel and Sarkozy have been at loggerheads in the past few months over involving private banks and insurance and hedge funds in the planned second bailout of Greece and their dispute blocked an agreement at previous meetings of euro zone leaders and their finance ministers.
While Chancellor Merkel pressed for involving private creditors to share the costs of the proposed bailout, Sarkozy favoured voluntary involvement, fearing that French banks with huge exposure to Greece's debts will suffer heavy losses.
Private creditors' participation is crucial for the chancellor to win the support of her coalition partners for the proposed new bailout.
The two leaders are also divided on the issue of rescheduling Greece's debts, which gained great significance in recent weeks as one of the options to deal with the debt crisis and thereby safeguard stability in the 17-nation euro area.
The German government on Wednesday reiterated its demand that the private sector should be involved in the second bailout.
Economics Minister and Deputy Chancellor Philipp Roesler said for the functioning of financial markets, it is absolutely necessary that finance investors carry the risks of their own engagements.