Yves Logghe, Associated Press
BRUSSELS — European leaders disagreed over how to fight the region's crippling debt crisis as they headed into a two-day summit in Brussels on Thursday and uncertainty spooked financial markets once again.
Amid the political deadlock, the crisis' effects rang out across the continent. Spain saw its borrowing costs jump in a bond sale a day after rating agency Moody's warned it might downgrade its debt. A bailout of Spain would dwarf those of Ireland and Greece and test the EU's financial limits.
Violent protests shook Athens on Wednesday and strikes continued throughout Greece.
Still, the two-day EU summit was not expected to result in any new shock-and-awe decisions to contain the smoldering debt crisis. Instead it will focus on a small change to EU treaties to set up a new crisis mechanism agreed almost two months ago.
German Chancellor Angela Merkel insisted that in itself was a milestone.
"It is a very big step of solidarity among the euro states," she said in a meeting of Christian Democrat leaders ahead of the summit.
She sought to play down days of rumors and reports about quarrels among the member states on how to fix the currency crisis that has become a major threat to EU plans of further integration.
"I want to send a clear and united signal for Europe and the euro," Merkel said. "It is always about showing responsibility, solid messages and showing solidarity."
"We are all seeking the same goal — namely to ensure a stable currency and a stable Europe."
But the pressure on European policymakers to find a way out of the debt crisis remains high. Many economists warn that weak growth, paired with worries over the health of the banks, has made the debt loads of countries like Greece, Portugal and Ireland unsustainable. Concern that they won't pay back their creditors has rocked bond markets and pulled down the value of the euro.
That was highlighted by Spain's debt auction on Thursday. The treasury sold €1.8 billion in 10-year bonds at an average interest rate of 5.4 percent, up sharply from 4.6 percent in the last such auction Nov. 18. It was obliged to pay a rate of 6 percent to sell €618 million in 15-year bonds, up from 4.5 percent in October.
Calls for bolder EU actions, either increasing the eurozone's €750 billion ($1 trillion) bailout fund or creating pan-European bonds to boost confidence in the euro, has been growing.
"There is a risk we are now doing too much shortsighted crisis management and too little of the reforms needed," Swedish Prime Minister Fredrik Reinfeldt said, arguing national budgetary measures were equally important.
Merkel — so far the most ardent opponent of both increasing the bailout fund and the creation of eurobonds — has been attacked by the country's biggest opposition party.
In an opinion piece in the Financial Times, the parliamentary leader of the Social Democrats, Frank-Walter Steinmeier, and Peer Steinbrueck, Germany's former finance minister, said a "more radical, targeted effort to end the current uncertainty" was necessary.
They called for a partial restructuring of the debts of Greece, Ireland and Portugal, guarantees for the bonds of stable countries, and the limited introduction of pan-European bonds.
One idea to increase the firing power of the bailout fund would see eurozone countries boost their guarantees for the region's portion of the fund. Eurozone governments have promised to guarantee €440 billion in bonds that can be issued to help states that run out of money. The remaining €310 billion would come from the EU's executive Commission and the International Monetary Fund.
However, to get a triple-A rating for those bonds — necessary to make them attractive to investors — governments had to guarantee 120 percent of the actual loan value, which means that of the €440 billion, only about €366.7 billion can be lent to distressed governments.
Extending government guarantees to lift the fund's lending capacity to the actual €440 billion — the figure that has been quoted throughout the crisis — might help to ease some concern over the financial standing of Spain, Europe's fourth largest economy.
Raf Casert in Brussels, Ciaran Giles in Madrid and Derek Gatopoulos in Athens contributed to this report.
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