European leaders seek to contain fears

PARIS, Sept. 13 (UPI) -- German Chancellor Angela Merkel said the highest priority in Europe is stopping an uncontrolled default in Greece that would spread to other countries.

"In a currency union with 17 members, we can only have a stable euro if we prevent disorderly processes. Therefore it is our top priority to avoid an uncontrolled default, because it would hit not only Greece. The danger would be very high that it would hit many other countries," Merkel said, The New York Times reported Tuesday.

Merkel is in discussions with French President Nicolas Sarkozy, who met with the president of the European Council, Herman Van Rompuy, Tuesday -- a meeting that did not involve statements for the press, the Times said.

Merkel and Sarkozy also decided against issuing a statement in support of European banks that are losing ground in the stock market, as Berlin argued the statement was not needed.

Italian Prime Minister Silvio Berlusconi, however, said he expected the lower house of Parliament in Rome would approve a $73 billion austerity package and that the measure would be more than sufficient to meet prior agreements with the European Central Bank.

On Tuesday, Italy's auction of $5.3 billion in five-year bonds was met with considerably softer demand than the country's previous sale.

Demand reached 1.28 times the amount of bonds offered for sale, down from 1.93 times in the previous sale, the Times said.

Yields averaged 5.6 percent Tuesday, up from 4.93 percent in the most recent sale of similar bonds.

In Greece, yields on 10-year bonds rose 1.04 points to 21.4126 percent.

Economist Intelligence Unit economist Robert O'Daly said news that the China Investment Corp. was prepared to buy Italian bonds was no more a panacea than the ECB's intervention in August.

"Purchases of Italian bonds or other Italian assets by China's sovereign wealth fund would buy Italy some time, but that is all. As seen with the ECB's purchases of $61 billion worth of Italian government bonds in August, the effect was temporary," he said.