Plans to tackle eurozone debt crisis stall

PLANS to tackle the eurozone debt crisis have stalled with Paris and Berlin at odds over how to increase the firepower of the region’s bailout fund, French president Nicolas Sarkozy said yesterday.

Sarkozy told French politicians the dispute was holding up negotiations and flew to Frankfurt to talk with German Chancellor Angela Merkel in an attempt to break the deadlock ahead of a make-or-break European leaders’ summit on Sunday. The two leaders left that meeting without speaking to waiting reporters.

Asked if a deal had been reached, Jean-Claude Juncker, chairman of the Eurogroup of eurozone finance ministers who attended the meeting, said: “We’re still in meetings Saturday, Sunday.”

France has argued the most effective way of leveraging the European Financial Stability Facility (EFSF) is to turn it into a bank which could then access funding from the ECB, but both the central bank and the German government have opposed this.

“In Germany, the coalition is divided on this issue. It is not just Angela Merkel whom we need to convince,” Sarkozy told the parliamentarians at a lunch meeting, according to Charles de Courson, one of the legislators present.

His comments fuelled doubts about whether eurozone leaders will agree a clear and convincing plan when they meet on Sunday.

Failure to do so would further undermine financial markets’ already shattered confidence in the currency bloc and its ability to get on top of a two-year-long debt crisis, which threatens the long-term viability of the single currency.

One senior EU official, who is involved in coming up with solutions to the crisis, said the only “circuit-breaker” now was for the ECB to make an explicit commitment to go on buying distressed eurozone debt for “as long as it takes”, something Trichet has said should not happen.

However, Barroso appeared to back such intervention, saying: “The decisive intervention of the ECB in secondary bond markets was and still is a critical element in securing financial stability in the euro area.”

Uncertainty over the eurozone’s future intensified as Moody’s issued a double-notch downgrade of Spain’s credit rating a day after the agency warned France its triple-A rating could come under pressure.

In Greece, parliament gave initial approval to a new round of belt-tightening measures needed to avert a default which could reverberate throughout the wider eurozone.