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High stakes at euro summit


High stakes at euro summit


As the latest euro rescue summit loomed, there remained major differences on confronting the currency bloc’s worsening sovereign debt crisis

Germany set the cat among the pigeons on Tuesday by rejecting any summit commitment to the European Central Bank buying troubled states’ bonds.

The leaders hope to get agreement on four points:

1: The banks taking bigger losses on the money they’ve loaned to Greece — up to 60 percent.

2: A top-up to those banks’ reserves to make up for the losses, with some public sector help.

3: The bailout fund — the European Financial Stability Facility — to be beefed up.

4: Italy, which is the biggest “at risk” country, being strong armed into getting its economy back on track.

But officials in Brussels said the euro zone leaders were unlikely to provide many hard numbers as the size of banks’ losses on Greek bonds is still under negotiation and the bigger firepower of the bailout fund is difficult to quantify.

The options for using the EFSF are the creation of a special investment vehicle to seek money from other countries’ sovereign wealth funds or even private investors.

On Tuesday euro zone officials said the International Monetary Fund is considering taking part in the special investment vehicle but has not made a decision yet.

The EFSF could also back Italian and Spanish bonds, which no longer have the markets’ confidence.

Investors are reluctant to buy those bonds as they fear Italy, Spain and some others euro zone countries will go the way of Greece and not fully repay what they have borrowed.

The European Central Bank has been buying Italian and Spanish bond to pull down Rome and Madrid’s borrowing costs.

How exactly it would continue to do that was in dispute ahead of the summit with Germany concerned about the Bank’s independence.

Chancellor Angela Merkel said she was unhappy with a phrase in a draft summit statement on the European Central Bank buying government bonds in the secondary market.

“he told reporters: “Germany does not accept this sentence, the way it is now in the draft. We are still working on it. And the sentence does not include the statement that secondary purchases are possible, it only states that the ‘non-standard’ methods of the ECB continue.”

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