Euro zone leaders have postponed an emergency summit planned for this weekend on a second bail-out of debt-laden Greece in the hopes that a much bigger crisis unfolding in the US will preoccupy the financial markets and give them more time to sort out their differences on the proposal.
A summit of the 17-nation euro group was proposed by the European Council President, Mr Herman van Rompuy, in Brussels to prevent larger euro zone economies such as Italy and Spain from being sucked into the crisis by demonstrating their determination to help keep Greece from defaulting on its debts.
However, the differences over involving the private sector in the proposed second bailout package of up to €120 billion were so great that they decided to delay their meeting until next week.
The euro zone’s largest economy, Germany, which has been pressing for involvement of the private sector to share the costs of a future financial rescue of Greece, saw no urgency in convening a summit of the heads of state and government as long as they are not in a position to take a decision.
If they continued to squabble over the terms of a second financial rescue of Greece a year after it received a bailout of €110 billion ($159 billion dollars), they will be sending a wrong signal to the financial markets, Germany argued.
A prerequisite for an emergency summit is that “we can agree on a complete, new programme for Greece”, the Chancellor, Ms Angela Merkel, said on Thursday in Nigeria, where she concluded a three-nation African tour.
Some of Germany’s partners as well as the European Central Bank have been opposing any solution that will be seen by financial markets as a partial default by Greece.
Italy and Spain have been demanding speedy action by their euro zone partners on a new rescue package for Greece because they are already being targeted by speculators as the next candidates for a bail-out after Greece, Ireland and Portugal.
Borrowing costs for Italy and Spain soared to record levels at the beginning of this week and they fear that if the uncertainty about the second bailout package continued, it will become more difficult for them to raise funds in the financial markets and the debt crisis will engulf the entire euro area.
The second rescue package is intended to give Greece more time to pay back its debts, which grew to a staggering €350 billion even after it received the first bailout in May last year.
Two weeks ago, the euro zone nations released the fifth tranche of €12 billion from last year’s rescue package immediately after the Greek Parliament endorsed a new package of tough austerity measures.
It prevented Greece from defaulting on its debt repayments due this month and ensures that it will remain solvent until September.
Italy’s success in raising €2.97 billion from the financial markets on Thursday, even though at a very high interest rates, showed that the country is still a far cry away from the situation in Greece, which was forced to seek a bail-out in May last year.
However, Italy had to offer a record 5.9 per cent yield on 15-year bonds and 4.9 per cent yield on five-year bonds.
The Italian senate’s approval on Thursday of a €48-billion austerity plan over three years is expected to calm down the financial markets, which became jittery in the past few days over fears of the Greek debt crisis spilling over to Italy and Spain.