EU Leaders Create Debt-Management Mechanism From 2013

December 17, 2010

By James G. Neuger and Jonathan Stearns -Bloomberg News

European Union leaders agreed to amend the bloc’s treaties to create a permanent debt-crisis mechanism in 2013 as they struggled to bridge divisions over immediate steps to stabilize bond markets.

A day after the European Central Bank armed itself with more capital to resist the crisis, the EU weighed measures such as using the bloc’s main rescue fund to buy bonds of fiscally distressed countries including Portugal and Spain.

“This will be taken under consideration in the next coming weeks,” Luxembourg Prime Minister Jean-Claude Juncker told reporters late yesterday in Brussels at an EU summit that ended today.

For now, Germany ruled out topping up the current 750 billion-euro ($1 trillion) emergency fund or using it more flexibly, reinforcing skepticism in markets about Europe’s search for the right formula to quell the fiscal contagion that threatens the euro.

The future setup “is to some extent window-dressing as it does not solve the current crisis,” said Carsten Brzeski, an economist at ING Group NV in Brussels. “European leaders failed to address the issue of debt sustainability and possible insolvency problems prior to 2013.”

The euro gained 0.8 percent to $1.3345 at 10:50 a.m. in Brussels, while bonds of Portugal, Spain, Greece and Ireland slipped. Moody’s Investors Service followed up warnings that it may cut the credit ratings of Spain and Greece by announcing today that it downgraded Ireland by five notches to Baa1 from Aa2, with a negative outlook.

Talks Under Way

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