European leaders battled with Greece over a second aid program, clouding an accord on a permanent aid fund and stiffer budget rules designed to stabilize the euro.
Greece faced criticism that its economic makeover is faltering, and it fended off German-led calls for a European overseer to take command of its budget after its deficits outstripped targets for two years.
“Negotiations are going in the right direction, and we have a good hope that we will have a definitive accord in the coming days,” French President Nicolas Sarkozy told reporters after a European Union summit in Brussels today.
Bargaining with Greece over a debt writedown and its economic management overshadowed efforts to point the way out of the financial crisis by speeding the setup of a full-time 500 billion-euro ($654 billion) rescue fund and signing off on a German-inspired deficit-control treaty.
Leaders completed the fiscal-discipline treaty, which speeds sanctions on high-deficit states and requires euro countries to anchor balanced-budget rules in national law. Eight countries outside the euro backed the pact, leaving Britain and the Czech Republic to boycott it.
The summit was the 16th in the two years since Greece’s fiscal emergency provoked a Europe-wide drama, leading to unprecedented aid packages for three countries -- Greece, plus Ireland and Portugal -- and shattering European faith that the common currency was unbreakable.
Bond markets, buoyed at the start of the year by 489 billion euros funneled by the European Central Bank into the banking system, gave mixed signals about the outlook today.
While Italy prepared for its biggest redemption of 2012 by raising 7.5 billion euros, close to its maximum target, Portuguese bonds fell on concern that Portugal won’t generate enough growth to pay down its debt. The euro slipped 0.7 percent to $1.3127 at 10:10 p.m. in Brussels, snapping a five-day rally.
A call by Poland, the biggest country with aspirations to adopt the common currency, to take part in euro-area decision- making was the final obstacle to a deal on the fiscal compact. Poland’s plea ran into opposition from a group led by France, which has long aimed to turn the euro area into an exclusive policymaking club.
Only countries that ratify the fiscal compact will be eligible for aid from the permanent bailout fund, the European Stability Mechanism. Leaders today decided to bring the ESM into operation on July 1, a year ahead of schedule.
The permanent fund requires governments to put collective action clauses into new bond issues as of January 2013, five months later than previously planned. The clauses are common in U.S. and U.K. law, enabling a restructuring to go ahead by a vote of a super-majority of bondholders, denying a veto right to solitary investors.
“Collective action clauses shall be included, as of 1 January 2013, in all new euro area government securities, with maturity above one year, in a way which ensures that their legal impact is identical,” according to a final text of the statutes.
While the clauses would leave the door open for future debt restructurings, the fund’s statutes deem writeoffs “exceptional” and subject to International Monetary Fund standards, the text says. It tones down language on “private sector involvement” -- code for forcing bondholders to take losses on governments that fall too deeply into debt.
Leaders sidestepped mounting pressure to raise the ceiling on rescue lending from 500 billion euros once the permanent fund goes on line.
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