German reluctance to boost funds to prevent debt contagion pushed the EU on Tuesday into cancelling eurozone talks on the matter despite pressure from G20 ministers.
The climate around the eurozone debt crisis blew hot and cold during the day with the EU Commission warning Spain that deficit targets will be applied despite slippage in Spanish progress on public finances.
But Portugal passed an EU-IMF audit of its reforms, clearing the way for a new slice of debt rescue aid, although the country again lowered its growth forecast.
Italy, applying wide reforms to correct its finances, raised more than 6.0 billion euros at far lower rates than when investors pushed Italian borrowing prices to unsustainable levels.
Severe pressure on Italy‘s ability to fund its debt in December had pushed the European Central Bank to flood the interbank lending market with cheap three-year loans to ease the pressure in a successful move, set to be repeated on Wednesday.
Meanwhile the European Central Bank suspended temporarily Greek debt as collateral for bank refinancing, after a rating agency S&P declared Greece to be in selective default.
Eurozone leaders were originally to debate on Friday, in a special restricted session on the second day of a European Union summit in Brussels, whether to combine a temporary firewall with a permanent fund due to come into effect in July.
“Germany is not ready,” a eurozone governmental source told AFP, of the latest move in a global tug-of-war over emergency bailout funding.
“Chancellor Angela Merkel ultimately agrees that the funds, old and new, should be combined,” the source said.
“But the timing isn’t yet right.”
This would give the debt-wracked 17-nation zone a total fund of about 750 billion euros ($1 trillion).
However, EU president Herman Van Rompuy on Tuesday delayed this sensitive discussion.
A source said a special summit of the 17 euro currency partners could be held next month instead.
“Don‘t rule out a (eurozone) meeting before March ends,” he said.
This is “in order to enhance the IMF’s capacity to fulfil its systemic responsibilities in support of its global membership,” they were to say, in a clear sign that Europe wants the rest of the world to act alongside the eurozone and supportive EU states.
As a result, discussion of the firewall this week is expected to be “very, very brief,” an EU diplomat also told AFP.
The diplomat stressed that German Finance Minister Wolfgang Schaeuble says later in March would be “timely” for a detailed debate among eurozone governments.
Schaeuble also said that pouring in more cash to the pot “didn‘t make any economic sense.”
Eurozone countries themselves have already promised 150 billion euros to the International Monetary Fund in the hope of reassuring the markets they have the resources to tackle a re-emergence of the crisis.
But countries outside the zone, including the United States, Britain, Japan and China insisted at a G20 meeting in Mexico last weekend that the eurozone do more.
Senior figures at the IMF have tentatively scheduled March 13 for their talks on the issue, but delays on both sides of the equation raise the prospect of the debate dragging on.
In the hours before the summit starts on Thursday at 6:00 p.m. (1700 GMT), eurozone finance ministers will hold a discussion on Greece, to check whether the government in Athens has met a string of conditions for a second bailout worth 237 billion euros ($310 billion).
When currency partners finally backed a second bailout last week, they set a long list of conditions that had to be fulfilled by a February 29 deadline.
A governmental source in Athens said Greek Prime Minister Lucas Papademos will arrive in Brussels on Wednesday for the talks.
He is to start a day early with a meeting with European Commission chiefs to discuss ways to re-direct nearly 8.0 billion euros ($11 billion) of EU grants allocated to Athens between now and 2013.
A third budget review linked to Portugal’s 2011 bailout worth 78 billion euros ($105 billion) found that “the program is on track, but challenges remain,” the European Union, European Central Bank and International Monetary Fund said. (AFP)
