U.S. Treasury Secretary Timothy Geithner urged EU finance ministers on Friday to leverage their bailout fund to better tackle the debt crisis, and to start speaking with one voice, but there was no agreement on what steps to take.
In a 30-minute meeting with euro zone ministers, Geithner pressed for the 440 billion euros European Financial Stability Facility (EFSF) to be scaled up to give greater capacity to combat the problems infecting Greece, Portugal, Italy and other states, a senior euro zone official said.
One analyst familiar with the proposal said it would involve the EFSF guaranteeing a portion -- perhaps 20 percent -- of potential losses on euro zone debt, so that its capital would effectively stretch five times further.
But ministers were resistant to Washington telling the 17-country euro zone and its finance chiefs what they should do.
"He conveyed dramatically that we need to commit money to avoid bringing the system into difficulty," Austria's Finance Minister Maria Fekter told reporters after the meeting.
"I found it peculiar that even though the Americans have significantly worse fundamental data than the euro zone, that they tell us what we should do and when we make a suggestion ... that they say no straight away."
Fekter said there had been particular disagreement over suggestions that Europe should commit more money to fighting the crisis. When German Finance Minister Wolfgang Schaeuble explained that would not go down well with taxpayers and that the only way to fund it would be a financial transaction tax, Geithner flatly ruled that out.
However, one senior official said Geithner's proposal on leveraging the EFSF had neither been rejected nor endorsed.
"It is being discussed," the official said, emphasising that the priority was for member states to ratify new powers for the EFSF agreed in July but which most euro zone national parliaments have yet to pass, so it can lend to countries under attack in the markets and buy sovereign bonds to prop up struggling states.
While no one described the gathering as ill-tempered or heated, it appeared clear from the reaction afterwards that Geithner and the Europeans did not see entirely eye-to-eye.
Jean-Claude Juncker, the chairman of the Eurogroup, said he was not prepared to discuss issues privy to the euro zone with someone from outside the currency bloc.
"We are not discussing the expansion or increase of the EFSF with a non-member of the euro area," he told reporters.
In a separate development that could have implications for Greek debt sustainability, financial sources told Reuters less than 75 percent of private creditors had agreed to take part in a bond swap scheme aimed at keeping Athens afloat, well below the 90 percent target. The measure is a vital part of a second Greek bailout agreed in July.
Belgian Finance Minister Didier Reynders said one option could be for the euro zone bailout fund to make up the difference while Greek bankers say a shortfall could be covered from funds set aside to support banks in need.
"END LOOSE TALK"
With most economists saying a Greek default is inevitable at some point and the much larger Italian economy not out of the firing line despite parliament's approval of a new austerity package this week, the pressure is on to act.
A Reuters poll of more than 50 economists across Europe gave a 65 percent chance Greece would default with half of them saying it would do so in within 12 months.
Speaking to a group of policymakers and bankers after the meeting, Geithner said the EU needed to end "loose talk" about a break-up of the euro and work more closely with the European Central Bank on solutions.
"What is very damaging (in Europe) from the outside is not the divisiveness about the broader debate, about strategy, but about the ongoing conflict between governments and the central bank, and you need both to work together to do what is essential to the resolution of any crisis," he said.
"Governments and central banks have to take out the catastrophic risks from markets ... (and avoid) loose talk about dismantling the institutions of the euro."
The ECB reluctantly agreed last month to buy the bonds of Italy and Spain after they came under market attack, on the understanding the EFSF would take up the cudgels once changes to the fund agreed in July are in place. That was too much for some in the ECB -- the top German official at the bank, Juergen Stark, announced his resignation last week.
In a news conference after finance ministers met alone to discuss the specifics of the crisis, Juncker and the European commissioner for monetary affairs, Olli Rehn, focused on how assistance to Portugal and Ireland was on track, and on the need for Greece to stick rigidly to the commitments it has made.
Inspectors from the ECB, EU and IMF should report back on progress in early October, Rehn said, meaning that the next disbursement of aid to Greece from its first bailout could be paid by mid-October.
A Greek government official said the heads of an EU/IMF inspection team would not arrive in Athens as planned on Monday to resume a performance review due to technical reasons and will instead hold a teleconference with the finance minister.
"The intention is to meet the fiscal targets for this year and next year without delay, without exception and deviations," Greek Finance Minister Evangelos Venizelos told reporters.
With no dramatic new policy unveiled, the euro gave up some of the gains seen in the previous session when the ECB and other top central banks joined forces to offer more dollar liquidity to banks struggling to secure funds.
"All the headlines that are coming out of the Ecofin meeting are pretty negative and the euro's resilience after the coordinated action from central banks on Thursday seems to be coming off," said Jeremy Stretch head of currency strategy at CIBC World Markets.
Among the issues finance ministers must try to resolve is a row over the terms of a second bailout for Greece, with countries such as Finland demanding collateral in return for new loans -- a major obstacle to a deal.
An adviser to Finnish Finance Minister Jutta Urpilainen said no deal would be reached today, and it would probably not be until early October that the dispute was finalised.
Collateral is a must for Helsinki but officials say a solution is coming together whereby it is made so expensive to demand it that no country but Finland will take it.