Merkel and Sarkozy urge second Greek bail-out
German and French leaders insist on a new rescue package for debt-laden Greece to be agreed as soon as possible.
Angela Merkel and Nicolas Sarkozy were speaking after Greece's Prime Minister George Papandreou announced a cabinet reshuffle, which included a new finance minister (Evangelos Venizelos).
Papandreou wants to impose political stability as Greece awaits approval for the next tranche of bail-out money. "We are facing the greatest threat our country has experienced in recent decades," he told his new cabinet.
In the meantime, Merkel and Sarkozy met in Berlin amid reports of public disagreement between their governments over whether private investors should be forced to assume a greater burden to resolve Greece's debt crisis.
There had been calls in Germany that investors should allow Greece extra time to pay off debts and should be made to participate in future fundraising by the Athens government.
Merkel and Sarkozy stressed that a "voluntary" extension of maturities of Greek government bonds held by private investors should be part of that solution in order to ensure market stability.
"There are worries that we want to cause a credit event," Merkel said. "We do not want that. This is about a voluntary participation."
Rating agencies and the European Central Bank had warned that imposing a rescheduling of Greek debt on bondholders would count as a "credit event" - a partial default by Greece - sending panic through financial markets and intensifying problems in Portugal, the Irish Republic and Spain.
It was unclear under what terms private investors might voluntarily take part in a Greek bail-out.
The announcement from France and Germany eased tensions in financial markets, as the comments were seen as a signal to banks and bondholders that they will not be made to incur losses on Greek debt.
Merkel is currently facing a backlash domestically over Germany's huge financial contribution to European bail-outs, while France's big three banks - Credit Agricole,
This week, ratings agency Moody's warned it may downgrade the three French banks because of their exposure to Greece.
The new Greek finance minister, Evangelos Venizelos, will take over from George Papaconstantinou, and the move sparked a jump in Greek bank shares.
"I am here by patriotic duty to carry out a real war," said Venizelos, a former defence minister. However, analysts were divided over whether the cabinet reshuffle would restore confidence.
The European Union's top financial official, Olli Rehn, has indicated that Greece is likely to get its next round of funds in July if Papandreou's government can pass new budget cuts and privatisations before the end of the month.
Greece needs a €12 billion loan to avoid defaulting on its debts due for repayment over the next few months.