Elmuhajer TV \ News Wires \ Washington
A grand plan to resolve Europe’s escalating debt crisis was once again in doubt after officials said Tuesday that key parts of the package may not be ready in time for a leaders’ summit on Wednesday.
A meeting of European Union finance ministers, which was to be held just before the summit, was called off. A summit of EU and eurozone leaders planned for Wednesday evening will still be held, but it was unclear whether the heads of state and government would be able to reach a detailed deal.
The euro and stocks on both sides of the Atlantic slid on the news amid fears that Europe would prove unable, after two years, to get a grip on its debt crisis.
The 17 eurozone countries have not reached final agreement on the details of two key elements of the plan - reducing Greece’s massive debts and boosting the firepower of the bailout fund, two European officials said. They spoke on condition of anonymity because the talks were confidential.
Because of that, the 10 EU countries that do not use they euro won’t sign off on a plan to force banks across the continent to raise billion of euros in capital and insisted the meeting of finance ministers be called off, the officials said.
One of the officials said that the eurozone was also still waiting for Italy to take concrete action to control its debts and kick start growth. “It’s a real mess once again,” the other official said. However, a third European official said he still expected leaders to reach concrete deals, including figures on how much of a cut private investors will have to take on their Greek bondholdings and how much firepower the bailout fund could get through leveraging.
The third official was also speaking on condition of anonymity.
The eurozone is locked into negotiations with banks and big investment funds to take losses of as much as 60 percent on their Greek bond holdings, but negotiators for the banks have indicated that they will not accept haircuts of that magnitude.
Forcing losses onto banks could trigger big payouts of credit insurance and cause huge turbulence in global markets, analysts warn. At the same time, two schemes to give the €440 billion ($612 billion) European Financial Stability Facility more firepower - by using it to guarantee bond issues from shaky countries like Italy and Spain - also still lack detail.
Some policymakers have doubts how effective the changes to the bailout fund will be at containing the crisis, and Guy Verhofstadt, the leader of the liberal faction in the European Parliament, warned that current ideas to give the EFSF more leverage could fail to convince the markets. But even if the technical difficulties of boosting the bailout fund can be worked out, rich eurozone countries remain reluctant to commit their money to insuring the debt of Italy until that country does its part to get its economy back on track.
Italian Prime Minister Silvio Berlusconi has promised his eurozone colleagues to detail concrete measures his government plans to take to boost growth and reduce its debt in time for the Wednesday summit. However, as of Tuesday afternoon, European Commission President Jose Manuel Barroso and EU Council President Herman Van Rompuy had not received the letter outlining the plans, a spokeswoman for Barroso said.
Berlusconi was struggling Tuesday to get his coalition partners to support new measures, such as raising the pension age, demanded by the eurozone. The leader of the far-right Northern League party warned that Berlusconi’s government might fall as part of the dispute, potentially heralding months of political limbo and threatening to destabilize the country.