GERMAN chancellor Angela Merkel came under pressure late last night to back radical measures to avert the threat of Greece’s sovereign debt crisis overwhelming the euro system.
At an emergency summit in Brussels, the leaders of the 16 euro countries were discussing whether they should ask the European Central Bank (ECB) to examine a scheme to buy government debt from members of the single currency.
Amid rising fears that “contagion” from Greece is contaminating the market for debt from other weak euro members, such a plan would be the most ambitious effort yet seen to stem the crisis. Given the independent remit of the ECB, however, it would not be open to political leaders to direct the bank’s governing council to embark down this road.
The bank’s president, Jean-Claude Trichet, was present at the summit as leaders circulated drafts of a communiqué on the debt crisis.
At issue as leaders sat down to dinner was the extent to which Dr Merkel would support the initiative.
Cautious by instinct, the German leader was the last to move each stage of the way towards the Greek rescue.
She also faces a key regional election tomorrow, a poll that comes amid huge public resistance in Germany to the rescue scheme for Athens.
In her public remarks, Dr Merkel has called for tougher financial regulation, deeper scrutiny of credit rating agencies and new rules to strengthen “economic governance” in the euro.
While she has argued that market turmoil this week was related to economic fundamentals in countries whose fiscal position is much stronger than Greece, other leaders are seeking radical action now because they foresee no let-up in relentless market pressure on sovereign borrowers and on the euro.
Well-placed sources said governments supporting the plan include Spain, Portugal and Italy, all of them heavily indebted and deeply reliant on market goodwill to keep their administrations afloat.
Euro group leaders were planning to send a strong message of support to Greek prime minister George Papandreou as he seeks to execute a draconian austerity plan that will trim €30 billion from his government’s annual budget in the coming years.
As talks on the communiqué continued late yesterday, European Commission chief José Manuel Barroso was urging euro group leaders to promise immediate concrete steps to deepen their economic co-ordination and develop a permanent crisis-resolution fund for the euro zone.
Following a meeting with French president Nicolas Sarkozy and European Council president Herman Van Rompuy, Mr Barroso was said to be pushing hard for the adoption of a stronger statement from the euro leaders.
The commission intends to advance plans next Wednesday for new measures to strengthen the stability and growth pact, which governs how the euro countries manage their affairs. Even before the plan is published, the thrust of Mr Barroso’s efforts was to secure agreement from the governments to adopt his proposals.
It was at the urging of Dr Merkel that Mr Van Rompuy called the summit last Sunday after euro group finance ministers activated an EU/IMF rescue plan for Greece by agreeing to release emergency loans worth €110 billion to the beleaguered country.
While the leaders planned to definitively sign off on the plan at the summit, plunging stock markets and a sharp rise in cost of servicing public debt led them to consider how they might signal to the markets of their determination to preserve the euro’s stability.