Euro bailout wrangles spook markets as fears of slump intensify
Hopes that summits in Brussels would deliver a ‘grand bargain’ to bring an end to an 18-month sovereign debt crisis fading fast
Larry Elliott, David Gow in Brussels, and Jill Treanor
Tuesday 25 October 2011
Fears intensified of a fresh global slump on Tuesday as it emerged that Europe’s leaders were still at loggerheads over a three-pronged plan to save the single currency.
Hopes that summits in Brussels on Wednesday would deliver a “grand bargain” that would finally draw an end to an 18-month sovereign debt crisis were fading fast as talks planned for Wednesday morning were cancelled, rumours surfaced of a collapse in Silvio Berlusconi’s Italian government and the German chancellor, Angela Merkel, adopted a hard line in negotiations with her French counterpart, Nicolas Sarkozy, over the shape of a rescue package.
The lack of progress forced the cancellation of a meeting of the EU’s 27 finance ministers, including Britain’s George Osborne, in Brussels on Wednesday.
However, two meetings – the first involving leaders of all 27 European Union countries and the second limited to the 17 members of the single currency – are expected to proceed, to the despair of several EU diplomats.
“Everybody realises that we are on the brink of such a total catastrophe that anything that prevents it and a huge recession must be grasped,” one EU diplomat said. “The markets will kill us if they haven’t laughed themselves to death.”
Shares have been rising in the past few days amid speculation that Wednesday’s meetings, delayed from the weekend to give officials more time to piece together a deal, would agree the terms of a Greek debt write-down, bolster the firepower of Europe’s bailout fund – the European Financial Stability Facility (EFSF) – and pump up to €108bn into Europe’s weakest banks. Negotiations continued into the night on each strand.