Europe’s effort to solve debt crisis hits a wall
BRUSSELS - Europe’s efforts to solve its escalating debt crisis plunged into disarray yesterday after Germany and France could not bridge their differences in time for a summit on Sunday, forcing them to call a second meeting.
Sunday’s summit is supposed to deliver a comprehensive strategy to get a grip on the currency union’s debt troubles by detailing new financing for debt-ridden Greece, a plan to make Europe’s banks fit to sustain worsening market turbulence, and a program to make the eurozone bailout fund more powerful.
The offices of President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany said they needed more time after it became clear the currency union’s two biggest countries could not agree on the main points of the plan.
Both governments said that all elements of the eurozone’s crisis strategy would be discussed on Sunday “so it can be definitively adopted by the heads of state and government at a second meeting Wednesday at the latest.’’
It also said the two leaders would meet Saturday evening in Brussels, ahead of the summit, in hopes of making progress.
“The chancellor is confident that in this way good, coordinated measures for the stability of the eurozone can be achieved,’’ Merkel’s spokesman, Steffan Seibert, told journalists in Berlin.
The announcement of a second summit is likely to increase concern over the eurozone’s ability to stick together and stabilize the common currency. Sunday’s summit had already been delayed from earlier in the week to give the leaders more time to agree on key issues.
“The parochialism and procrastination that got us into this mess continue,’’ said Sony Kapoor, managing director of the economic think tank Re-Define. “Unless EU leaders pull a rabbit out of their hat now, this will worsen the already deep politico-economic crisis that Europe is facing.’’
European officials said ahead of the announcement that the eurozone remained deeply divided on important parts of its strategy on debt-ridden Greece, banks, and its bailout fund.
The eurozone is divided on how to give its bailout fund more firing power, with the French wanting the European Central Bank to help out, which Germany opposes.
A third point of contention is how to fund expensive capital injections into weak banks that might take losses on Greek debt and have already taken a hit from falling prices of other government bonds. France and several other countries are worried that bailing out their banks could hurt their credit ratings and want the bailout fund to support lenders directly, rather than lending first to governments.
One European official, speaking on condition of anonymity, suggested the need for more time may also have been caused by disagreement between Merkel’s government and the German Parliament, which felt that decisions affecting taxpayer money were being taken over its head.
Seibert appeared to support that assessment, saying further changes to Europe’s bailout fund would require the agreement of the parliament.