4:51 AM
BRUSSELS |
BRUSSELS (Reuters) - European leaders gave themselves until June to finalize an increase in their temporary bailout facility at a summit, failing to deliver the broad package they had promised to resolve their debt crisis.
Concern about Portugal, whose premier quit after austerity measures aimed at avoiding a bailout were thrown out by its parliament, dominated the meeting even if leaders chose not to discuss it openly.
The heads of government also extended the schedule for paying into a permanent rescue fund to be set up from mid-2013, giving themselves five years to provide capital of 80 billion euros, rather than doing it over a shorter period in bigger installments.
That was a concession to German Chancellor Angela Merkel, who had balked at the previous funding plan for the European Stability Mechanism (ESM) because it gave her less room to cut taxes before the next federal election in 2013.
European officials have said the fund will have a triple-A rating despite the longer funding timetable.
Having said for weeks that they would agree a "comprehensive package" to tackle the euro zone debt crisis at the two-day summit, the leaders were unable to finalize key decisions because of political hurdles in some of its 27-member states.
Although they agreed in principle earlier this month to boost the lending capacity of their temporary safety net -- the European Financial Stability Facility (EFSF) -- to 440 billion euros from roughly 250 billion, they had to push this back until mid-year because of looming elections in Finland.
Any agreement on debt relief for Ireland has also been delayed pending the results of bank stress tests next week which could show a sharp rise in losses at the country's stricken financial institutions.
Reflecting the threat investors see from Portugal, yields on its 10-year benchmark bonds rose above 8 percent on Friday, a rate that is considered unsustainable in the long term, making a bailout more likely. <GVD/EUR>
The euro itself was little moved.
President Anibal Cavaco Silva will meet the leaders of Portugal's political parties on Friday to decide whether to call a snap election.
OPPOSES BAILOUT
Prime Minister Jose Socrates is the second euro zone leader to fall victim to the rolling sovereign debt crisis after Ireland's prime minister was voted out of office last month.
Attending the summit, Socrates made clear his continued opposition to Portugal asking for a bailout, and said that whatever Portuguese government comes to power after new elections, it would stand by its deficit-cutting commitments.
If Portugal's president calls for new elections, by law they cannot be held for a further two months. Any decision on whether to seek a bailout may only therefore be taken in May. Portuguese voters are opposed to any EU/IMF assistance.
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