European leaders are preparing a pledge to stamp out the debt crisis and defend the euro, seeking to keep markets at bay until a late-March deadline to bridge differences over budget rules, rescue-loan rates and buybacks.
Germany, the biggest of the 17 euro nations, is making its assent to the expanded rescue effort conditional on tougher controls of countries’ finances, say four officials involved in the talks who declined to be named because the deliberations aren’t public. Existing budget rules have gone unenforced since the euro’s debut in 1999.
The euro climbed to a three-month high today and bond-risk premiums for Spain, Portugal, Italy and Belgium narrowed for a third day as investors bet Europe would succeed in reinforcing its arsenal to battle the year-old debt crisis.
A February 4 summit in Brussels has “got to send a signal — it doesn’t have to come up with a complete conclusion,” said Graham Bishop, a London-based analyst.
Officially devoted to energy and innovation policies, the meeting will review the debt-crisis options and reaffirm a self-imposed March 25 target to strengthen the bailout fund, set up a permanent rescue mechanism and proclaim new rules against fiscal slippage.
The leaders will set out a “clear path” to forging a “comprehensive package” to stamp out the debt crisis by the end of March, EU President Herman Van Rompuy said today.
Seeking consensus While direct purchases of distressed countries’ bonds in the primary market will be part of the toolkit, other pieces — such as purchases in the secondary market, debt buybacks or lower rates on aid — have yet to fall into place, the officials said.
Buying bonds directly instead of offering bailout loans, as the emergency fund does now, may enable struggling countries to retain access to markets and escape the stigma of dependence on rescue financing, said the people.
Bond purchases were the original declared purpose of the European Financial Stability Facility (EFSF), which was cobbled together on a May weekend after a hastily engineered ¤110-billion loan package for Greece failed to calm markets.
