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EU split deepens over Greece

30 January 2012, 15:41 CET
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(BRUSSELS) - European leaders faced a damaging split Monday as a German plan to strip Greece of budget sovereignty overshadowed EU plans to focus on a deal on deficits and talk about jobs.

The idea, floated by Berlin, to strip the government in Athens of its sovereignty and give the power to make decisions on finances to a special EU commissioner, opened up clear fault-lines both within and outside the eurozone.

It could ultimately place in doubt Greece's second bailout, agreed in October but bogged down amid a series of new conditions.

German Chancellor Angela Merkel and Greek Prime Minister Lucas Papademos arrived around half an hour before the European Union's first summit of the year began shortly after 1400 GMT.

Merkel preferred not to make a big deal of plans circulated to finance ministry officials on Friday.

Without pulling back on the subject, she said the debate should now be about "how Europe can help Greece accomplish the tasks given to it."

Papademos then walked through the leaders' entrance without saying a word.

But the proposal -- termed "the product of a sick imagination" by a Greek minister on Saturday after the plan was leaked -- was slammed by Luxembourg Prime Minister Jean-Claude Juncker.

"I am strongly against the idea of imposing a commissioner with that mission only to Greece. That's not acceptable," said Juncker, who chairs the key grouping of eurozone finance ministers.

Austrian Chancellor Werner Faymann also said the German proposal "doesn't achieve anything and it goes in the wrong direction."

However, the German plan drew what looked like solid if cautious support from Swedish Prime Minister Fredrik Reinfeldt.

"They are not delivering on reforms," he said of Greece and EU frustration with broken promises.

"Which is why we are having this discussion," he said.

"I can understand that."

Dutch Prime Minister Mark Rutte would not comment on "another country's" proposal, but echoed that Greece can not expect to receive bailout aid without making sacrifices.

"Greece must also honour the commitments it has made with us," he said.

Greece has been promised a second bailout of 130 million euros ($171 million).

But at the weekend, German Finance Minister Wolfgang Schaeuble told the Wall Street Journal that "unless Greece implements the necessary decisions and doesn't just announce them ... there's no amount of money that can solve the problem."

With the country buried under a mountain of debt, Greece is seeking to wrap up a deal with private investors that have been asked to take a "haircut" worth about half the 200 billion euros owed to them.

The EU had wanted to use its New Year gathering to send out a message of optimism.

EU President Herman Van Rompuy said on Twitter that Monday's talks, held amid a general strike over EU-ordered austerity for host country Belgium, would open up a "path to hope."

Later, leaders were to agree a German-driven pact to toughen fiscal discipline, despite Polish demands revealing new tensions.

They could point to an improved economic confidence survey and another successful debt auction for Italy.

But stocks slid awaiting news on Greece, and Spain plunged quicker into what Brussels deems a "moderate" recession looming large over Europe.

Leaders, some facing imminent re-election campaigning, must contend with an unemployment rate averaging 10 percent across the 17-nation eurozone.

Ideas include lowering the tax burden on employers to get more people hired, and giving all youths guaranteed options in work, training or study.

Britain opted out of the new "fiscal compact" in December, and Polish Prime Minister Donald Tusk said Monday that Warsaw is thinking again.

"We will not accept it in its present form," said Tusk, who wants non-euro governments to be given a bigger say in eurozone economic governance, which France rejects.

A discussion about whether to increase the size of a new permanent rescue fund from July, the European Stability Mechanism (ESM), is to wait until March.

This new "firewall" is planned to have firepower worth 500 billion euros, but may be raised to 750 billion euros.


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