EU leaders struggle over debt crisis

EU leaders are struggling to make headway in the battle over a second Greek bailout as pressure builds for a tough new response…

EU leaders are struggling to make headway in the battle over a second Greek bailout as pressure builds for a tough new response to the debt crisis.

As Germany blocked plans for an emergency euro zone summit tomorrow, notional Irish borrowing costs jumped to new records after credit rating agency Moody’s imposed a “junk” grade on Irish debt.

The EU Commission intensified its criticism of the downgrade, saying it was “incomprehensible”, and Germany said it was “completely at odds” with the recent views of other rating agencies.

Incoming European Central Bank chief Mario Draghi said the debt emergency had “entered a new phase” and called on political leaders to come up with a clear response to the contagion. “We have to recognise that management of the financial crisis has not gone smoothly with partial and temporary interventions,” he said in a speech to the Italian banking association in Rome.

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“We must now bring certainty to the process by which sovereign debt crises are managed, by clearly defining political objectives, the design of instruments and the amount of resources.”

European Council president Herman Van Rompuy and French president Nicolas Sarkozy have been pressing for a special summit to settle deep divisions over the Greek rescue.

But Berlin played for time, saying there was no rush to finalise a second aid plan. Chancellor Angela Merkel is said to be very unhappy that news of the proposed summit was leaked to reporters before she agreed to attend.

A senior euro zone official warned that big technical challenges remained to be overcome before a summit could be convened as the leaders would meet only if a Greek deal was in prospect.

Taoiseach Enda Kenny told the Dáil that Europe would have to come up with a comprehensive plan to tackle the debt crisis if leaders were called to Brussels.

“Ireland’s problem is with Europe,” he said. “There is no point in having a meeting that won’t bring about a conclusion in a comprehensive sense to something that is not going to go away unless it is dealt with. Therefore, if a council meeting is to be held on Friday, it must be one that will grasp the nettle and set out Europe’s response to the contagion which is clearly causing anxiety and concern.”

A schism over the involvement of private creditors in a second Greek rescue has fuelled big spikes in Italian and Spanish borrowing costs, but some of the pressure on those countries eased yesterday.

However, Italy’s auction today of bonds worth up to €5 billion will be closely watched in Brussels for any sign that the turmoil has dimmed demand for its debt.

At the same time, the EU-IMF-ECB “troika” will unveil the result of its latest review of Ireland’s bailout.