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Pressure builds as eurozone ponders debt solutions

By Don Melvin

Associated Press

Published: Tuesday, Nov. 29 2011 10:21 a.m. MST

From left, European Commissioner for the Economy Olli Rehn, Spain's Finance Minister Elena Salgado, Italian Prime Minister and Finance Minister Mario Monti and Luxembourg's Prime Minister Jean-Claude Juncker pose for a photo during a round table meeting of the eurogroup at the EU Council building in Brussels on Tuesday, Nov. 29, 2011. The 17 finance ministers of countries that use the euro converged on EU headquarters Tuesday in a desperate bid to save their currency and to protect Europe, the United States, Asia and the rest of the global economy from a debt-induced financial tsunami.

Virginia Mayo, Associated Press

BRUSSELS — The eurozone's 17 finance ministers converged on EU headquarters Tuesday in a desperate bid to save their currency — and to protect Europe, the United States, Asia and the rest of the global economy from a debt-induced financial tsunami.

The ministers were discussing ideas that only weeks ago would have been taboo: countries ceding fiscal sovereignty to a central authority, an elite group of euro nations that would guarantee one another's loans but require strong fiscal discipline from members.

Changes to existing rules are being touted as one way the eurozone can get out of its debt crisis, which has already forced Greece, Ireland and Portugal into international bailouts and is threatening to engulf bigger economies such as Italy, the eurozone's third-largest.

If Italy were to default on its €1.9 trillion ($2.5 trillion) debt, the fallout could break up the currency used by 322 million people and send shock waves throughout the global economy.

German Chancellor Angela Merkel reiterated her support for changes to Europe's current treaties in order to create a fiscal union with binding commitments by all euro countries.

"Our priority is to have the whole of the eurozone to be placed on a stronger treaty basis," Merkel said Tuesday in Berlin. "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."

Merkel acknowledged that changing the treaties — usually a lengthy procedure — won't be easy because not all of the European Union's 27 member states "are enthusiastic about it." But she dismissed reports that the eurozone, or some groups of nations, might go ahead with a swifter treaty between their governments.

Countries outside the eurozone heaped on the pressure, knowing that if the euro fails, bank lending would freeze worldwide, stock markets would likely crash and Europe's economies would crater. The pain would spread to U.S. and Asia as their exports to Europe collapse.

President Barack Obama said Europe's failure to resolve its debt crisis would complicate his own efforts to create American jobs. And even Poland, a non-eurozone nation historically wary of German dominance, appealed for help.

"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," Sikorski added. "And I demand of Germany that, for your own sake and for ours, you help it survive and prosper."

Looking ahead, Europe has enormous debts that must be refinanced in the next year — €638 billion ($852 billion) coming due in 2012, of which 40 percent needs to be refinanced in the first four months, according to Barclays Capital.

On their way into the meeting, finance ministers were hopeful of at least one concrete action — releasing €8 billion ($10.7 billion) in the next installment of Greece's bailout loan, without which the country will go bankrupt within weeks. The EU had demanded, and received, letters from all the leaders of Greece's main political parties backing tough austerity measures to get the loan.

But some finance ministers acknowledged that they probably won't reach their goal of increasing the European Financial Stability Facility — which is supposed to be a firewall against financial contagion — from €440 billion ($587 billion) to €1 trillion ($1.3 trillion).

"It will be very difficult to reach something in the region of a trillion," said Dutch Finance Minister Jan Kees de Jager. "Maybe half of that."

He said more money might come from the International Monetary Fund — but more money in itself would not fix Europe's basic problem.

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