European leaders sparred with Greece over a second rescue program, clouding progress toward a permanent aid fund and tougher 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 surpassed targets for two years.
“What the Greeks have to do is show they are ready to implement the package,” Dutch Prime Minister Mark Rutte told reporters as he arrived for a European Union summit in Brussels today. “We can help Greece through this difficult phase, but then Greece has to execute all agreements they made with us.”
Bargaining with Greece over a debt writedown and its economic management threatened to overshadow a summit meant 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.
A start-of-year respite from market pressures continued today when Italy raised 7.5 billion euros, close to its maximum target, in preparation for its biggest redemption of 2012. At least five more countries plan bond sales this week. The euro slipped 0.9 percent to $1.3160 at 5:30 p.m. in Brussels, snapping a five-day rally.
“We can say -- with caution -- that we see elements of financial stability in France, in Europe and in the world,” French President Nicolas Sarkozy said yesterday. “Europe is no longer at the edge of the cliff.”
Greece is making progress on one component of the package, nearing an agreement for bondholders to accept deeper losses on a 50 percent cut in the face value of more than 200 billion euros of debt.
Creditors are willing to take an average coupon of as low as 3.6 percent on new 30-year bonds, said a person familiar with the matter, who declined to be identified because a final deal hasn’t been struck yet. As recently as Jan. 23, creditors wanted an average coupon of about 4.25 percent, two people familiar with the talks said then. That offer equated to a loss of about 69 percent on the net present value of Greek debt.
European concerns that Greece can deliver budget cuts and economic reforms are holding up other parts of the package, which Greece needs to meet a 14.5 billion-euro bond payment due on March 20.
“We won’t have a thorough discussion of Greece because the troika is in Greece and we don’t have a result of the talks with the banks,” German Chancellor Angela Merkel said.
The troika -- the European Commission, European Central Bank and International Monetary Fund -- oversees the 110 billion-euro program awarded to Greece in 2010 and conducts talks on an additional 130 billion euros pledged in October.
Germany’s call for an EU-appointed overseer of Greece’s budget prompted consternation in Athens and led other European governments to warn against treating Greece differently than other countries.
“It is right that one controls strictly but using one commissioner especially for one country, I don’t think is a good idea,” Austrian Chancellor Werner Faymann said.
The German view was captured by Michael Fuchs, the head economic spokesman for Merkel’s Christian Democratic Union in parliament. In an interview in Berlin, Fuchs said: “The free lunch is over: no external controls, no money. I can’t look my constituents in the eye and say anything different.”
With the euro economy set to contract by 0.5 percent this year, according to the median of 19 forecasts compiled by Bloomberg, the leaders will seek to send a pro-growth message by breaking down barriers to cross-border commerce.
Leaders will pledge to channel unspent subsidies and consider boosting the lending of the bloc’s project-financing arm, though without providing any figures, according to a draft summit statement obtained by Bloomberg News.
“We must do more to get Europe out of the crisis,” the draft statement said.
Leaders also plan to complete the fiscal-discipline pact, which has gone through five drafts since nine countries outside the euro teamed with the 17 on the inside to work up the new rules in December. Britain was alone in boycotting the process.
A call by Poland, the biggest country with aspirations to adopt the common currency, to take part in euro-area decision-making looms as the main obstacle to a deal on the fiscal compact.
Poland’s plea to take part in euro summits is running into opposition from a group led by France, which has long aimed to turn the euro area into an exclusive policymaking club.
Poland will join the fiscal pact “under one condition -- that these countries that take this co-responsibility are also participating in the decision-making process in terms of how this fiscal compact is executed,” Prime Minister Donald Tusk said today in Brussels.
Only countries that ratify the fiscal compact will be eligible for aid from the permanent bailout fund, the European Stability Mechanism. Leaders today will pledge to bring the ESM into operation on July 1, a year ahead of schedule.
Leaders are unlikely to address mounting pressure to raise the ceiling on rescue lending from 500 billion euros once the permanent fund goes on line, two EU officials said last week.