BRUSSELS (AP) — Eurozone finance ministers on Tuesday averted an imminent disaster in Greece by approving the next installment of the country’s bailout loan — 8 billion euros ($10.7 billion).
Without that money, Greece would have run out of cash before Christmas, leaving it unable to pay its employees or provide services. Two officials in Brussels reported the development, speaking on condition of anonymity while the meeting was still going on.
The installment is part of a 110 billion euro ($150 billion) bailout package from eurozone nations and the International Monetary Fund that has kept Greece afloat since May 2010. The new cash came after the European Union demanded, and received, letters from top Greek political leaders pledging their support for tough new austerity measures.
Meanwhile, with Italy sinking rapidly into financial chaos, the 17 finance ministers scrambled to find enough money to give their rescue fund a veneer of credibility and the markets some reason to believe their embattled currency won’t break up.
Italy’s borrowing rates shot up above 7 percent, an unsustainable level in the long term and a shocking increase over rates just last month. Markets rose for the second day Tuesday on hopes that the enormous pressures on the ministers would produce some results.
The finance ministers were discussing ideas that until recently would have been taboo: countries ceding additional budgetary sovereignty to a central authority — EU headquarters in Brussels.
Strengthening financial governance is being touted as one way the eurozone can escape its debt crisis, which has already forced Greece, Ireland and Portugal into international bailouts and is threatening to engulf Italy, the eurozone’s third-largest economy.
Italy is too big for Europe to rescue. If it were to default on its 1.9 trillion euro ($2.5 trillion) debt, the fallout could break up the currency used by 322 million people and send shock waves throughout the global economy.
Aside from the money for Greece, some ministers acknowledged Tuesday they probably wouldn’t reach their more important goal of increasing the leverage power of the European Financial Stability Facility. The fund, which is supposed to be a firewall against financial contagion swallowing up nation after nation, needs to be expanded from 440 billion euros ($587 billion) to something like 1 trillion euros ($1.3 trillion).
And the task of agreeing on grand changes that might save the eurozone from splitting up likely will fall to the European presidents and prime ministers attending a Dec. 9 summit in Brussels.
German Chancellor Angela Merkel reiterated her support for changes to Europe’s current treaties in order to create a fiscal union with stronger binding commitments by all eurozone countries.
“Our priority is to have the whole of the eurozone to be placed on a stronger treaty basis,” Mrs. Merkel said Tuesday. “This is what we have devoted all of our efforts to; this is what I’m concentrating on in all of the talks with my counterparts.”
Mrs. Merkel acknowledged that changing the treaties — usually a lengthy procedure — won’t be easy because not all of the European Union’s 27 nations “are enthusiastic about it.” But she dismissed reports that the eurozone, or smaller groups of nations, might go ahead with their own swifter treaty.
Countries outside the eurozone heaped on the pressure, fearing drastic consequences if the euro were to fail. Bank lending would freeze worldwide, stock markets would likely crash, European economies would go into a freefall, and the U.S. and Asia would take a big hit as their exports to Europe collapsed.
“I will probably be the first Polish foreign minister in history to say so, but here it is,” Radek Sikorski said in Berlin. “I fear German power less than I am beginning to fear German inactivity. … The biggest threat to the security and prosperity of Poland would be the collapse of the eurozone.”
Eurozone countries have enormous debts that must be refinanced — with 638 billion euros ($852 billion) coming due in 2012, of which 40 percent needs to be refinanced in the first four months alone, according to Barclays Capital.
The 17 ministers also are discussing jointly issuing so-called eurobonds — an all-for-one, one-for-all way of having the different countries guaranteeing one another’s debts.
Right now, each nation issues its own bonds, meaning that while Italy pays above 7 percent, Germany pays about 2 percent. Having stronger countries such as Germany stand behind the general European debt would lower Italy’s borrowing rates and perhaps help it avoid a debt spiral toward bankruptcy. At the same time, it would raise Germany’s borrowing costs.
An even more radical solution was proposed Tuesday by the head of Germany’s exporters association: urging Greece and Portugal to leave the eurozone. BGA President Anton Boerner told the Associated Press that’s the only way those two nations can spur the growth needed to overcome their crippling debts.
“The marginal impact of these bits of ‘good news’ should be limited at best, and investors will still cast a nervous eye towards this week’s bond auctions,” said Geoffrey Yu, an analyst at UBS.
Angela Charlton in Paris, Melissa Eddy and Juergen Baetz in Berlin, Pan Pylas in London and Greg Keller in Brussels contributed to this report.
By John Solomon
How the government's punishing of the exposure of official wrongdoing can linger for years
Independent voices from the TWT Communities
A collection of communities writers columns on Benghazi
We welcome you to the intimate and personal thoughts on the news and events we, as editors, watch, read, and discuss with our writers every day.
Consummate traveler Todd DeFeo explores the unique stories that make destinations worth going to.
Looking at pop culture, politics and social issues.
Benghazi: The anatomy of a scandal
Vietnam Memorial adds four names
Cinco de Mayo on the Mall
NRA kicks off annual convention
California wildfires wreak havoc