Under-pressure Europe postpones summit

11 Oct 2011, 7:07 am   -   Source: AAP
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The EU wants to be able to say it has done its bit when the Group of 20 industrial and emerging powers stages its summit in France on November 3-4. (Getty)

The EU wants to be able to say it has done its bit when the Group of 20 industrial and emerging powers stages its summit in France on November 3-4. (Getty)

Europe's leaders have postponed a summit, buying more time as they decide what to do about Greece now that their banks also need a financial leg-up.

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Europe's leaders have postponed a key summit on the debt crisis, buying more time as they decide what to do about Greece now that their banks also need a financial leg-up.

Greece completed an audit, which will be key to determining whether it gets further bailout funding, but its finance minister said Athens now expects a deeper writedown of its debt in a second rescue that Slovakia threatens to block on Tuesday.

As the debt crisis claimed its first bank, with France and Belgium bailing out Dexia, European Union president Herman Van Rompuy announced that a two-day meeting of leaders scheduled for October 17-18 has been put back to Sunday, October 23.

In between times, there will be an extra gathering of finance ministers from the 27 EU states, and more talks among the 17 from the eurozone. The finance ministers were not due to meet again until November 7-8.

Van Rompuy's goal, following talks on Sunday between German Chancellor Angela Merkel and French President Nicolas Sarkozy on recapitalising banks, is to come up with a "comprehensive" solution to the nearly two-year-old emergency.

In other words, to try to address everything from a stalled second Greek bailout, with a bigger debt write-off by private creditors, to the terms for a possible long-term rewrite of EU treaties to bind eurozone states to a common fiscal policy.

"Further elements are needed to address the situation in Greece, the bank recapitalisation and the enhanced efficiency of stabilisation tools," Van Rompuy said on Monday in announcing the delay.

It comes amid growing pressure from the United States and other nations who are worried about instability spreading from Europe.

The magnitude of the threat was highlighted in the decision by France, Belgium and Luxembourg on Monday to rescue Dexia, whose balance sheet of half a trillion euros ($A6.89 trillion) is bigger than the entire Greek banking system.

Only three months after the lender passed European stress tests, guarantees put up by the three states amounted to 90 billion euros.

The EU wants to be able to say it has done its bit when the Group of 20 (G20) industrial and emerging powers stages its summit in France on November 3-4.

British Prime Minister David Cameron warned that "time was short" and urged eurozone leaders to adopt a "bazooka" approach, in an interview with the Financial Times on Monday.

In a letter to G20 partners released later in the day, Van Rompuy said the EU would also demand from the world's top economies "a constructive contribution to face the global economic challenges".

Without announcing concrete details on the European bank recapitalisation plan, Sarkozy promised in Berlin on Sunday a "lasting, global and quick responses before the end of the month".

But the EU is still waiting to debate recommendations by international auditors re-assessing the sustainability of some 370 billion euros of state debts in Greece.

This at a time when squeezing out more austerity is triggering daily protests on the streets of the Greek capital.

After a first, 110 billion euro bailout in May last year, which the auditors have placed on hold, a second, similar deal was agreed in July - with banks also expected to write off debts to the tune of another 50 billion euros.

On Monday, Greek Finance Minister Evangelos Venizelos said the talks with the auditors were concluded, and Athens expects the private creditors, who initially accepted a 21 per cent loss, to write off more of their holdings of Greek government bonds.

Experts have predicted that at least half of the debt would have to be written off for Greece's finances to become stable.

In exchange for defaulting on some of its loans, Greece wants watertight assurances it will not be kicked out of the eurozone.

The EU is also waiting for the London-based European Banking Authority to put figures on the banks' recapitalisation - which the IMF and others say will run to at least 100 billion euros.

Meanwhile, Slovakia is threatening to torpedo approval of a revamp for the European Financial Stability Facility (EFSF), which was agreed at the July summit to give the fund the firepower it needs to cope with the second Greece bailout and shoring up banks.

The four-party coalition in Bratislava was holding urgent talks in a last-ditch effort to secure a parliamentary vote on expanding the EFSF.

Malta, the only other holdout in approving the EFSF, was due to vote later on Monday.

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