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UPDATE 1-French min says Greece has euro zone "solidarity"

Published 12/11/2009, 04:28 AM
Updated 12/11/2009, 04:30 AM

* Lagarde sees euro zone solidarity with Greece

* Euro zone watching, Athens must keep its promises

* Paris, London agree City must be reined in

(Adds quotes)

By Estelle Shirbon

PARIS, Dec 11 (Reuters) - Greece can rely on euro zone solidarity as it confronts its debt crisis but its European partners expect Athens to get its public finances in order, French Economy Minister Christine Lagarde said on Friday.

"We are in a monetary zone of complete solidarity because we are in the euro zone," Lagarde told a press breakfast in Paris.

Greece has vowed to do whatever it takes to check its vast deficit, responding to a beating on markets unnerved by Fitch Ratings cutting Greek debt to BBB+ with a negative outlook, citing fiscal deterioration in the euro zone's weakest member.

"Greece has made a certain number of commitments. It is working and that work will continue ... What matters is that it meets its commitments and of course we are all very attentive to that," Lagarde said.

She added that the European Commission, the European Central Bank and Greece's euro zone partners were monitoring the situation closely.

The premium investors demand to hold Greek government bonds rather than euro zone benchmark German Bunds fell sharply on Friday, underscoring ongoing volatility in the Greek/German bond yield spread.

Asked whether the Greek crisis was a sign of major strains within the 16-member euro zone, Lagarde said that current difficulties posed the question of closer economic cooperation within the zone with new urgency.

"We're at a decisive turning point for Europe and the euro zone," she said.

"That is the point of the discussions we are having today on the necessity or otherwise, the depth or otherwise, of even better coordinated economic policies," she said.

NO FRENCH PLOT AGAINST THE CITY

Turning to the issue of fears in the City of London that incoming EU Internal Market Commissioner Michel Barnier, a Frenchman, would try and slap tough new rules onto it, Lagarde said London and Paris were very much on the same page.

"There is no French plot to take over the City," she joked.

"The City is strong enough and solid enough and brutal enough to resist any such attacks," she said.

"The City needs to be brought back to reality and to reasonableness," she said, adding that there was a broad consensus about that.

Lagarde said plans announced by the British government on Wednesday to slap a windfall tax on bankers' bonuses was "an expression of such determination".

France is also working on plans to impose its own tax on bankers' bonuses, but Lagarde declined to give any details. President Nicolas Sarkozy is expected to announce the specifics on Friday.

Asked whether she saw any chance of persuading Germany to adopt a similar measure on bonuses, Lagarde said Berlin had long been considering a type of financial sector insurance scheme funded by banks themselves.

Although Berlin might not do exactly the same as London or Paris, some sort of working arrangement was possible, she said.

"I am confident that our German colleagues will ... find a common platform that keeps banks at a level playing field, so there is no competitive advantage drawn from regulatory discrepancies," she said. (Editing by Andy Bruce)

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