Euro Leaders Begin Six-Day Marathon to Reach Agreement on Debt-Crisis Plan
European leaders braced for a six- day battle over how to save Greece from default, shield banks from the fallout, and build more powerful defenses against the debt crisis rocking the 17-nation euro economy.
With President Barack Obama stressing the “urgency” of a fix, divisions between Germany and France festered as finance ministers arrived in Brussels for the start of the anti-crisis marathon. As a first step, they are set to approve releasing the next aid payment for Greece.
Europe’s international image is “disastrous,” Luxembourg Prime Minister Jean-Claude Juncker told reporters before the meeting began. “We’re not really giving a great example of a high standing of state governance.”
Aid packages of 256 billion euros ($354 billion) for Greece, Ireland and Portugal have failed to stabilize markets or prevent the turmoil spreading as far as France, co-anchor with Germany of the European economy.
Euro finance ministers meet today, followed by ministers from all 27 European Union countries tomorrow. EU and euro-area leaders gather on Oct. 23, to be capped by another euro summit on Oct. 26. Juncker, the chairman of today's meeting, doesn't plan a press conference afterward.
The talks “will be tough and the situation is serious,” Dutch Finance Minister Jan Kees de Jager said. “We really need to step up efforts, make extra reforms, extra cuts and strict agreements on budgets.”
A falling-out between Germany and France has snagged the crisis management. French President Nicolas Sarkozy is pushing for the use of a European Central Bank role in boosting the firepower of the 440 billion-euro rescue fund, a measure opposed by Germany.
German Finance Minister Wolfgang Schaeuble denied a Berlin- Paris rift, saying Germany called for the second summit to give the government time to consult lawmakers.
“France and Germany are not at all stuck in their positions,” Schaeuble said.
Seven options are on the table for leveraging the fund, known as the European Financial Stability Facility. Germany and the ECB have ruled out granting it a banking license, the most potent option.
“New ones are coming into the process because smart people are looking for creative options,” Austrian Finance Minister Maria Fekter said in an interview. “None of the models are amazingly better than the others.”
One way under consideration to break the deadlock is by keeping the EFSF going instead of replacing it with a planned permanent fund, two people familiar with the discussions said yesterday.
The resulting combination of the EFSF and 500 billion-euro European Stability Mechanism would deliver 940 billion euros to impress the markets, the people said. A consensus is emerging to start the ESM in mid-2012, a year ahead of schedule, they added.
Juncker said today’s meeting will sign off on the payout of an 8 billion-euro loan to Greece, the sixth installment of a 110 billion-euro package awarded in May 2010.
Greek lawmakers clinched that payment by passing fresh austerity measures yesterday, as hooded protesters threw rocks and battled riot police outside the parliament in Athens.
Officials are considering five scenarios to update a July agreement that foresaw 21 percent losses on Greek debt for private bondholders, people familiar with the deliberations said. They range from sticking with a voluntary swap to a so- called hard restructuring that forces investors to exchange Greek bonds for new ones at 50 percent of their value, the people said.
A deepening recession and delays in enacting budget cuts have raised Greece’s financing needs by at least 20 billion euros since July, when euro leaders hammered out a 159 billion- euro package, the people said.
“The situation in Europe is very difficult,” Finnish Finance Minister Jutta Urpilainen said. “Our meeting tonight will be also difficult.”
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