EUROPEAN GOVERNMENTS are struggling to reconcile increasing divisions over the debt emergency, leaving a series of key disputes unresolved after a two-day meeting in Poland.
Amid fresh warnings about the slowdown in the recovery of the European economy, finance ministers failed to reach a deal to satisfy Finnish demands for collateral on the Greece bailout and they did little to meet demands from the International Monetary Fund for increased bank recapitalisations.
EU central bank governors attended the meeting as did US treasury secretary Timothy Geithner, who warned of “catastrophe” if ministers failed to confront rising tensions in financial markets.
But the talks broke up without any new initiatives being taken and fresh tension broke out over a renewed German push for a financial transactions tax.
While German Bundesbank chief Jens Weidmann argued that some of the present wave of economic pessimism was exaggerated, he said risks were increasing significantly as the debt crisis widens.
“The risks for the economic outlook considerably increased, due to the tensions in financial markets that relate to the sovereign debt crisis in the European Union.”
As ministers left the south-western city of Wroclaw on Saturday afternoon, the non-euro Swedish and British ministers called for more resolute action from their counterparts in the single currency area.
Each raised the lack of progress on bank recapitalisations but neither specifically mentioned the German, French and Spanish lenders on which attention centres right now.
“From our perspective, we see a clear need for bank recap. The IMF has spelled it out very clearly that the European system needs a better backstop and that is basically a matter of capital,” said Sweden’s Anders Borg.
“The problem is that the politicians seem to be behind the curve all the time. We are chased by the markets instead of leading them. We really need to see some more political leadership on the issue.”
Similarly, British chancellor George Osborne said euro zone leaders needed to confront weakness in their banking system and take decisive action to resolve uncertainty over the ailing Greek bailout.
“The euro zone leaders know that time is running out, that they need to deliver a solution to the uncertainty in the markets,” Mr Osborne said.
The meeting came in the wake of intensive Franco-German efforts to calm down speculation about a sovereign default in Greece and co-ordinated action by global central banks to provide dollar liquidity to euro zone banks.
Even as they handed down a two-week deadline to Greece to take action on its deficit to secure a new €8 billion bailout loan, ministers insisted they hadn’t considered the possibility of any Greek default.
“After the discussions I was party to I think the Greek situation will be resolved,” Minister for Finance Michael Noonan told reporters.
“Obviously everybody knows what the big picture is, and in your mind when you’re forming policy you factor in risk and you’d be figuring out what one might do if risks occurred but, leaving this beautiful part of Poland today, my idea of risk is much lower than it was when I came.”
After weeks of fruitless talks, there was no deal to satisfy Finland’s demand for collateral from Greece on its portion of the bailout. Finnish minister Jutta Urpilainen said it was “hard to say” whether an agreement could be brokered in the coming days.
Germany raised again the idea of tax on financial transactions, an idea backed by France and Austria, but conflict was evident.
“There is no agreement in the EU,” said European internal markets commissioner Michel Barnier.
Polish minister Jacek Rostowski, host of the meeting as part of his country’s rotating presidency of the EU, said there were “very considerable divisions” on the issue.
With countries like Britain opposed, Germany has indicated it may table a plan for a common transactions tax in the euro area. That also proved contentious.
