A grand plan to resolve Europe's escalating debt crisis is once again in doubt after officials decided today that key parts of the package will not be ready in time for a leaders' summit tomorrow.
A meeting of European Union finance ministers, which was to be held just before the summit, was called off. A summit of EU and eurozone leaders planned for tomorrow evening will still be held, but its conclusions on the grand plan may remain vague without the technical work concluded.
The euro and stocks on both sides of the Atlantic took a dive on the news amid fears that Europe would prove unable, after two years, to get a grip on its debt crisis.
The 17 eurozone countries have not reached final agreement on the details of two key elements of the plan — reducing Greece's massive debts and boosting the firepower of the bailout fund, two European officials said.
Because of that, the 10 EU countries that do not use the euro won't sign off on a plan to force banks across the continent to raise billion of euros in capital and insisted the meeting of finance ministers be called off, the officials said.
One of the officials said that the eurozone was also still waiting for Italy to take concrete action to control its debts and kick start growth.
"It's a real mess once again," the other official said.
The eurozone is locked into negotiations with banks and other private investors to take losses of as much as 60 per cent on their Greek bond holdings, but negotiators for the banks have indicated that they will no accept losses of that magnitude.
Forcing losses onto banks could trigger big payouts of credit insurance and cause huge turbulence in global markets, analysts warn.
At the same time, two schemes to give the 440 billion euro European Financial Stability Facility more firepower — by using it to guarantee bond issues from shaky countries like Italy and Spain — also still lack detail.
Some officials doubt how effective the changes to the bailout fund will be at containing the crisis. Others say countries are reluctant to commit their money to insuring the debt of Italy as long as that country does not do its part to get its economy back on track.
Italian Prime Minister Silvio Berlusconi has promised his eurozone colleagues to detail concrete measures his government plans to take to boost growth and reduce its debt in time for the Wednesday summit. However, as of this afternoon, European Commission President Jose Manuel Barroso and EU Council President Herman Van Rompuy had not received the letter outlining the plans, a spokeswoman for Barroso said.
Berlusconi was struggling today to get his coalition partners to support new measures, such as raising the pension age, demanded by the eurozone. The leader of the far-right Northern League party warned that Berlusconi's government might fall as part of the dispute, potentially heralding months of political limbo and threatening to destabilize the country.