EU leaders arrived for a Brussels summit on Thursday more openly divided than at any time since the euro crisis began, with Germany’s Chancellor Angela Merkel showing no sign of relenting in her refusal to back other countries’ debts.
Merkel is being urged at home to hang tough and reject all efforts to make Germany underwrite European partners’ borrowing or banks, while her European Union partners say that may be the only way to save the single currency.
“Nein! No! Non!” shouted a headline splashed across the front page of the normally sober German business daily Handelsblatt, with a commentary by its editor-in-chief saying Merkel must remain firm at the two-day summit.
Spain and Italy, the latest euro zone countries in financial markets’ firing line, are pleading for emergency action to bring down their spiralling borrowing costs before they are forced out of the bond market. They want the euro zone’s rescue funds or the European Central Bank to intervene fast.
Merkel insists that fundamental reforms to give European Union authorities power to override national budget and economic policies must come before any further shared liability.
The meeting is the 20th summit of leaders of the 27 EU states since the crisis erupted in early 2010, giving them a reputation for failing to match their talk with the sort of decisive action needed to resolve it.
The euro hit a three-week low and European shares fell as investors bet that this latest summit would fail to produce concrete measures to tackle the crisis, sending 10-year Spanish government bond yields above the danger level of 7%.
Italy had to pay its highest yield since December of 6.2% to sell 10-year debt on Thursday, helped by domestic demand and a smaller-than-average sale.
Many international investors have deserted Spanish and Italian debt, pushing yields to levels that Madrid at least cannot afford for long as it tries to save banks ravaged by a property market collapse and rein in an overshooting deficit.