Second eurozone summit called as rifts persist

20th October 2011, Comments 0 comments

Rifts between European Union nations over how to solve the eurozone debt crisis threatening the world economy on Thursday forced the 17-nation eurozone to call a fresh summit next week.

After vowing decisive action to G20 partners to resolve Europe's crisis, wrangling between Paris, Berlin and others has prompted the need for a further round of talks, following a marathon weekend of crunch meetings already set in Brussels.

"There will be another summit next week," said Volker Kauder, who heads German Chancellor Angela Merkel's parliamentary group.

With Europe's debt woes threatening to push the world back into recession, the two powerhouses have been scrambling to overcome differences over how to beef up the continent's financial rescue fund to save weak economies such as Greece as well as the likes of Italy and Spain.

Steffen Seibert, spokesman for Merkel said, "We have made enormous progress but not enough to take final decisions on Friday.

"We will have talks on Sunday and we will take decisions on Wednesday" next week.

EU officials said the delay was made worse by a need for souped-up parliamentary scrutiny of all future bailout decisions in Germany, a condition of ratifying the most recent changes to the eurozone's rescue fund.

In Paris, officials said Merkel and French President Nicolas Sarkozy would hold a new meeting in Brussels on Saturday evening.

In a plea for consensus, European Commission president Jose Manuel Barroso said a "very positive outcome was possible on Sunday if there is a sense of compromise by the participants."

Sarkozy missed the birth of his baby daughter Giulia on Wednesday, rushing to Frankfurt to iron out differences with Merkel.

With problems growing, markets began to accelerate a downward drift after having been buoyed for much of last week by signs a breakthrough could be achieved.

Hopes were that a three-day EU marathon beginning Friday and involving finance and foreign ministers as well as heads of state and government, would agree to beef up Europe's financial rescue facility and recapitalise banks under threat from the burgeoning two-year euro-crisis.

With the future of debt-straddled Greece topping a long to-do list, EU nations too will consider whether to approve a fresh eight-billion-euro loan to Athens, which was hit by a second day of violent protests against the government's tough austerity plans after which one man died.

While the Greek parliament approved late Thursday a controversial government list of even tougher austerity measures demanded by the country's creditors that sparked the street violence, Prime Minister George Papandreou warned the EU leaders beforehand: "I am sounding the alarm against more delays" in Brussels.

Nations sharing the euro were expected to approve the next tranche of cash for Greece as it implements drastic belt-tightening that is infuriating unions, but a final decision to help reduce Athens' 350-billion-euro debt mountain hangs in the balance.

Barroso emphasised the need to "reinforce" the European Financial Stability Facility (EFSF), the bloc's primary weapon to stem the crisis.

The EFSF currently has a limit of 440 billion euros with which to rescue nations in trouble but would need much more if it had to throw a lifeline to strugglers such as Italy or Spain, Europe's third and fourth largest economies.

One option under discussion is to use the cash as insurance for investors facing possible losses on their holdings of bonds issued by weaker member states, but there are deep divisions over the best solution.

France had been pushing for the fund to morph into a bank that could borrow from the European Central Bank to help those in need.

Berlin is opposed to this on the grounds it would entail changing the EU's founding treaty -- potentially a long and painful ratification process.

Differences also exist over how much to boost the fund's capacity, to somewhere between one and two trillion euros, an EU diplomat said.

Also on the agenda of the talks is how to strengthen banks, notably in France, holding debt from struggling nations.

Plugging the hole is a job the International Monetary Fund reckons could cost 100-200 billion euros, and that ratings agencies suggest could result in a downgrade for France.

© 2011 AFP

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