Germany and France, still at odds over a more forceful response to the sovereign debt crisis, postponed a decision-making summit meeting for several days amid signs that the complexities of European politics may block an all-encompassing resolution.
The meeting planned for this weekend will still be used to examine proposals to strengthen Europe’s banks, increase the clout of the euro bailout fund, and better coordinate euro area economic policy, a spokesman for Chancellor Angela Merkel of Germany said.
But a comprehensive plan will not be decided until a second summit meeting, set for no later than Wednesday, the spokesman, Steffen Seibert, said in a statement. The French government issued a nearly identical statement.
The last-minute delay reinforced fears that European leaders were still far from containing a crisis that threatens the world economy.
“The politicians have been trying to solve the crisis, but a consistent effort has been missing,” Andreas Dombret, a member of the executive board of Bundesbank, the German central bank, told an audience in Berlin on Thursday. It was an unusually sharp criticism for an official to make about his political counterparts.
Market reaction to the postponement, which was announced after trading in Europe closed, was muted. The Standard Poor’s 500-stock index ended up nearly half a percent, to 1,215.39. The seesaw day in United States markets suggested investors were trying to interpret the mixed signals from Europe.
European leaders are committing to take major steps and have set themselves a deadline. But suddenly calling a second meeting is highly unusual, and a more pessimistic interpretation would be that divisions among leaders may mean even further delays.
Analysts agree that a comprehensive crisis package would include more debt relief for Greece, a stronger bailout fund for the overly indebted countries, and some means of removing doubts about the creditworthiness of Italy and Spain.
It would also include a plan to address the underlying cause of the crisis — the lack of any effective means of enforcing enforce budgetary discipline among euro members — and a plan to restore growth in countries like Greece and Portugal that have lost international competitiveness.
After all the face-to-face interaction among political leaders this week, and plans for more to start Friday evening, the signs of disarray are unsettling. The French president, Nicolas Sarkozy, stoked expectations for progress when he flew to Frankfurt on Wednesday for a brief meeting with Mrs. Merkel as his wife, Carla Bruni-Sarkozy, was giving birth to a daughter in Paris.
The talks this weekend will begin Friday evening with a meeting of euro area finance ministers. On Saturday, finance ministers from the European Union will meet. Mrs. Merkel and Mr. Sarkozy will also meet. On Sunday, heads of state or government from the European Union, the European Council, will gather in the morning. Then just the 17 euro area leaders will meet.
By saying they need more meetings next week, the leaders prolonged the suspense and created the impression that they were having trouble agreeing on details, including ways to maximize the firepower of the 440 billion euro, or $607 billion, bailout fund.
Agreement is broad on the need to restock capital cushions at European banks so they could withstand a default by Greece. But agreeing on how much money banks should raise, and where the money should come from, is another matter.
Goldman Sachs estimated the amount at 300 billion euros, or $412 billion, which would have to come from capital markets, or as a last resort, taxpayers. Other estimates range from 100 billion euros to 400 billion euros, depending on assumptions about how deep a loss banks must absorb on their holdings of Greek and other government debt.
European officials, according to people involved in the discussions, are leaning toward the low estimates, which would be easier to raise but might not be enough to rebuild faith in European banks and restore their access to international money markets.
Banks are fiercely resisting attempts to make them raise more capital, which would reduce profits and expose them to government control if they cannot raise enough from private investors. Whether governments have the legal authority to require recapitalization is in question.
Meanwhile, negotiations to get banks to take bigger losses on their investments in Greek debt “are making very little progress,” said a banker with knowledge of the discussions, who spoke on condition of anonymity because the talks were continuing.
Jack Ewing reported from Frankfurt, Stephen Castle from Brussels and Liz Alderman from Paris.
Article source: http://www.nytimes.com/2011/10/21/business/global/eu-postpones-decision-on-how-to-deal-with-crisis.html?partner=rss&emc=rss