But the talks highlighted the contrast between Europe’s tortuous decision making and the breakneck speed with which financial markets are pushing the currency zone toward a moment of truth.
While proposals have been working their way through Europe’s convoluted procedures, risks have grown that the debt crisis will plunge Europe back into a steep recession or lead to a fragmentation of the currency union.
On Tuesday the borrowing costs of Italy, the euro zone’s third-largest economy, after Germany and France, reached nearly 8 percent, a record since the inception of the common currency in 1999. An Italian newspaper reported Tuesday that because of the economic slowdown, the European Commission now believes the Italian government will need to adopt more stringent measures to reach its financial targets.
The Dutch finance minister, Jan Kees De Jager, said Tuesday that help might be needed from the International Monetary Fund to bolster the euro zone bailout fund, the European Financial Stability Facility. “We have to look for other solutions to complement the E.F.S.F. and that in my mind will be the I.M.F.,” he said as he arrived for the meeting in Brussels.
A month after E.U. leaders announced a plan to resolve the crisis, most of those decisions have either been delayed or overtaken by events, said Nicolas Véron, a senior fellow at the Bruegel economic research institute in Brussels. Plans to increase the power of the bailout fund, now expected to fall short of the target of €1 trillion, or $1.3 trillion, were now “too little too late,” Mr. Véron said, adding that Europe’s policy errors were caused by a “systemic failure of our institutional framework.”
France and Germany say they planned to break the downward spiral by outlining a new push towards a fiscal union, with stricter rules against budget “sinners,” before a meeting next week of E.U. leaders in Brussels. But the detail of how these ideas will be pushed through remains highly uncertain.
Germany is determined to toughen the euro zone rules significantly before it will contemplate any more far-reaching changes to help shore up the currency. So far Berlin has resisted any larger intervention by the European Central Bank that might stoke inflation, or the short-term introduction of common euro zone bonds.
Some officials hope that agreement in principle on new fiscal rules can encourage the E.C.B. to intervene more actively to help Italy and Spain without risking criticism from Berlin. In recent days senior figures in Austria, Finland and the Netherlands have declined to rule out an enhanced role for the central bank.
Plans to expand the bailout fund, and allow it more freedom, were agreed to in July, and a decision was made in October to leverage its power to around €1 trillion. Because of changed market conditions and declining confidence, which means investors may need more insurance to be tempted to buy bonds, it now appears that the total firepower will fall short of €1 trillion.
Luc Frieden, Luxembourg’s finance minister, said the €1 trillion figure “will be very difficult to reach, in view of the changed market circumstances.”
“I think the E.F.S.F. alone will not be able to solve all the problems,” Mr. Frieden said. “We have to do so together with the I.M.F. and with the E.C.B., within the framework of its independence.”
The decision on whether to release an international loan of €8 billion to Greece was also made in October, but implementation was held back when the former Greek prime minister, George A. Papandreou, suggested holding a referendum on the bailout package. The idea was later scrapped and Mr. Papandreou resigned. Bank recapitalization, the third pillar of the October meeting, was not a main area of discussion Tuesday, but there are worries that this requirement may impose burdens on banks that make them less likely to lend.
Article source: http://feeds.nytimes.com/click.phdo?i=e2fb4e96eb311b604fa61e1a8de99323
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