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Nicolas Sarkozy wants to speed up the launch of the proposed tax on financial transactions in Europe because he thinks this might help his re-election bid. As the euro zone gears up for yet more high-level meetings about its debt crisis, a series of planned summits await. German Chancellor Angela Merkel’s latest meeting with French President Nicolas Sarkozy focused on the problems facing Greece. They put pressure on the euro zone’s most heavily indebted nation to make a deal with creditor banks on a bond swap and avoid defaulting on its debt repayments. The macroeconomic imbalance has to be resolved, not only by the deficit countries but also by surplus countries.

Merkel meets IMF head Christine Lagarde Tuesday, and Italian Prime Minister Mario Monti Wednesday. Together with Sarkozy, Merkel warned Greece on Monday that it would not get any more bailout funds if it did not reach a deal soon. Merkel and Sarkozy do not feel confident enough to write a big check to help out Greece yet. 

Greece enters a pivotal period in which it must finish a crucial renegotiation of its more than $200 billion of debt. Thus far, the plan is to offer bondholders 15 cents in new cash and 35 cents in new debt for every 100 cents of Greek debt they hold. According to several people familiar with the situation, the maturity on the new debt is likely to be 30 years, but the interest rate is yet to be decided and is the most contentious part of the deal. The new bonds are expected to be under U.K. legal jurisdiction rather than Greek jurisdiction. Bondholders prefer U.K. jurisdiction because it prevents Greece from retroactively changing the terms of the debt. (The Greek Parliament can’t change U.K. laws). Also expected to be part of the offer, a structure that puts the new bonds on par with the European Financial Stability Fund. Greece has a principal repayment of more than $14 billion due in mid-March and it doesn’t have the money. In fact, the country remains cash-flow negative each week. The debt negotiation must get done in order to first reduce the size of that payment in March, and second to get the next tranche of bailout money from their European partners. If those things don’t fall into place, a default is highly likely. The only other remedy would be a last-minute emergency injection of cash. Where could that come from? Perhaps other European countries, but that would be a tremendous political hurdle to climb.

One way to force bondholders to tender their existing debt is to impose a “collective action clause” retroactively. That means Greece could simply change the terms of the old debt, and decide that if a certain percentage of bondholders, say 75 percent to 90 percent, agree to tender, then the deal is imposed on every bondholder. However, this, too, would trigger a credit event because changing the terms of a bond is understood to be a triggering event under the terms of CDS contracts. European leaders are concerned a credit event could trigger a Lehman-like contagion in the euro zone.

Yet another option is for Greece to change its laws at the parliamentary level, rather than changing the terms of the old debt. Passing that law in and of itself is not a credit-triggering event. But what remains uncertain to market participants is this: If enough bondholders still don’t tender their bonds, and then Greece imposes the Collective Action Clause, is that a CDS triggering event? That will be decided by a committee from the International Swaps and Derivatives Association, and some market participants say it is impossible to predict what a committee will do, especially when there is so much political pressure from European leaders to avoid it.

Sarkozy said last week he was ready to go it alone and introduce a financial transactions tax just in France if necessary rather than wait for the whole European Union to sign up to it — an unlikely prospect given that Britain is refusing to impose such a tax for fear of damaging the City of London, Europe’s biggest financial center. Merkel, keen to show nervous markets that the Franco-German alliance is intact at the start of what promises to be another difficult year in the euro crisis, praised Sarkozy’s stance and even made a minor concession, saying for the first time that she could envisage the tax being introduced just in the 17-member euro zone rather than the full 27-member EU. The tax, based on concept proposed by US economist James Tobin who called for a tax on currency transactions in the early 1970s, has been under renewed discussion since 2011 when the European Commission proposed a plan to tax stock, bond and derivatives trades from 2014, potentially raising €57 billion ($73 billion), much of it from Britain, the region’s biggest trading center. Under the EU plan, which would need the backing of all 27 member states to become law, stock and bond trades would be taxed at the rate of 0.1 percent, with derivatives deals at 0.01 percent. Given the public mistrust of banks since the 2008 global financial crisis, such a tax would be a popular move and would help cover the cost of this and future crises. But it would prove difficult to introduce, with critics saying it will simply scare off traders. Sweden and Britain are strongly opposed to it.