Europe struggles on debt rescue plan

ATHENS, Greece — European leaders remained frustrated Tuesday in their efforts to craft a response to the continent's debt crisis one day before a self-imposed deadline, while a political stalemate in Italy over austerity measures further diminished hopes for a quick resolution.

As top European officials prepared to return to Brussels today for their second summit on the crisis this week, they sent conflicting signals about how much progress they had made on key elements of a rescue plan. Still unsettled was how best to use the limited resources of a European bailout fund to help cash-strapped governments such as Greece and Italy, and how much of a loss private investors like banks should take on their holdings of Greek bonds, which have already lost much of their market value.

Adding to the uncertainty, finance ministers from euro-zone countries canceled a planned meeting without public explanation, deferring critical decisions to the summit of government chiefs.

U.S. Treasury Secretary Timothy Geithner said Tuesday that only clear, detailed steps would help convince global investors that Europe can contain its problems, which are rooted in high levels of government borrowing and have threatened to undermine the region's banking system. In turn, the debt crisis is taking a toll on Europe's economy and could trip up the recovery in the United States.

Geithner has joined officials from China and other economic powers in pressuring the 17-nation euro region for a more forceful plan to shore up its banks, develop a financing plan for embattled Greece, and guarantee that the governments of large countries such as Italy and Spain will be able to borrow money at affordable rates. If borrowing costs for these countries spike, they may face default and Europe would be hard-pressed to come up with enough money to bail them out.

European leaders have promised a convincing plan. But tangled politics within European countries and bickering among countries has put such a plan in jeopardy. Recent debate has underscored tension between European economic powers such as Britain that don't use the euro and the 17-nation currency bloc.

Europe struggles on debt rescue plan 10/25/11 [Last modified: Wednesday, October 26, 2011 12:13am]

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