EU Leaders Postpone Summit to Flesh Out Crisis Strategy
European Union leaders will delay a summit meeting planned for next Monday by almost a week, buying time to agree a crisis strategy to boost struggling banks and cope with debt-laden Greece.
European Council President Herman Van Rompuy announced the postponement until Oct. 23 after German Chancellor Angela Merkel and French President Nicolas Sarkozy promised on Sunday to present measures to stabilise the euro zone by the end of the month.
The two premiers gave scant details about their plan, other than to signal that it would include bank recapitalistion, something which has divided German and France.
Germany, which could easily bankroll its weak lenders, wants countries to stand by their banks.But France, whose banks are heavily exposed to Greek debt and grappling with an interbank lending freeze, fears it could lose its high credit rating by bailing them out.
Rather than a politically embarrassing taxpayer bailout, France would prefer to shunt the bill onto a euro zone fund, which will soon be able to lend money to governments to help banks. Germany is insisting this should be only a very last resort.
It is now up to Van Rompuy to broker a compromise on that and other issues, as well as getting other countries in Europe, including Spain and Italy, on board.
The size of any bank recapitalisation is also linked to the losses that Greek bond holders, many of whom are banks, have to take.
This has been fixed under an earlier agreement but Jean-Claude Juncker, who chairs meetings of euro zone finance ministers, recently signalled that it could be revisited.
"This timing will allow us to finalise our comprehensive strategy on the euro area sovereign debt crisis," said Van Rompuy, who will chair the EU leaders' meeting as well as one for euro zone heads of state and government.
"Further elements are needed to address the situation in Greece, the bank recapitalisation and the enhanced efficiency of stabilisation tools (the EFSF bailout fund)."
The delay also means leaders will know whether Greece qualifies to receive the next tranche of aid under its existing rescue programme, to save the country from a full-scale default on its debts.This will be determined by inspectors from the "troika" of the International Monetary Fund, the European Commission and the European Central Bank, who have been examining whether Greece has stuck to targets to cut spending, sell state assets and reform its economy.
Greece was wrapping up talks with EU and IMF officials on the vital aid, Finance Minister Evangelos Venizelos said on Monday.
Without the next 8 billion euro aid installment Athens could run out of cash as soon as mid-November, risking a default that would drag the euro zone deeper into a debt crisis already shaking financial markets worldwide.
The delayed report troika report is due soon.