WRAPUP 2-Divided EU seeks pre-summit deal on Greek debt

* EU leaders still split over Greece safety net, euro slides
* No agreement on IMF role, holding euro zone meeting

* Leaders inch forward at talks, no deal yet

(Adds new talks)

By Timothy Heritage

BRUSSELS, March 25 (BestGrowthStock) – European Union leaders were
striving on Thursday to reach a last-minute agreement on how to
help Greece resolve its debt crisis and reassure investors
before what was likely to be a tense summit.

European diplomats said European Commission President Jose
Manuel Barroso had met Greek Prime Minister George Papandreou on
Wednesday evening and telephone diplomacy was in full swing but
differences remained over whether to offer Greece a safety net.

“They are inching forward,” one EU source said, adding that
euro zone leaders could still agree to hold a special meeting on
Greece after the first day of summit talks between all 27 EU
leaders ended in Brussels.

Efforts to arrange a special meeting of the 16 countries
that use the single currency had failed by late Wednesday, with
France and Germany discussing what role the International
Monetary Fund might play and what form extra contributions by
euro zone states could take.

“Germany does not want to have a meeting of euro zone
leaders unless there is a definite chance for a deal,” an EU
diplomat said.

Worried by the signals this would send, another envoy said:
“If there is no meeting of euro zone leaders, we can expect
markets to see that negatively as a sign that the Europeans are
unable to reach an agreement (on Greece).”

Athens revealed a huge budget deficit last October, shocking
investors who sent Greek borrowing costs soaring while it tried
to get the deficit down with unpopular austerity measures.

It needs to borrow some 16 billion euros between April 20
and May 23 alone to refinance maturing debt at twice the rate
Germany has to pay to borrow.

Greece says it needs only a standby aid package to reassure
nervous financial markets and that it can get by without having
to resort to using the money that is set aside for it.

But Germany, Europe’s biggest economy, faces public
opposition to any bailout for Greece before a regional election
in May and fears any financial assistance would face a legal
challenge at home.

As a condition for any support package, Chancellor Angela
Merkel also wants EU rules to be rewritten to provide harsher
punishment for deficit sinners.

CONTAGION

The euro fell (Read more about the trembling euro. ) more than 1 percent against the dollar on
Wednesday to $1.3335, its lowest since May 2009, and continued
heading south on Thursday.

Portuguese shares also fell and the risk premium on
Portuguese and Greek debt over German bonds widened after Fitch
downgraded Portugal’s sovereign debt rating by one notch to AA-
on Wednesday, reflecting a deterioration of the rating agency’s
confidence in Portugal’s economy.

EU leaders are concerned debt-servicing problems could also
hit other countries in the euro zone including Portugal, Spain
or Italy and fear the unity of the 27-country bloc, which
represents 500 million people, will suffer long-term damage.

“The EU should show solidarity with Greece and work out a
common position which would end all market speculation. A quick
decision by the EU would offer the best help,” said Polish Prime
Minister Donald Tusk, whose country does not use the euro.

A senior European envoy said the divisions reflected wider
battles among EU institutions and member states.

“It’s hard to see how we can break out of this rather bleak
economic picture. Inter-institutional relations have taken a
downturn,” the envoy said.

The Greek debt crisis is not formally on the summit agenda,
despite pressure to discuss it from the executive European
Commission along with the main theme of creating jobs and
boosting economic growth.
Diplomats also said no euro zone leaders’ meeting was
planned on Greece before the EU heads of state and government
leaders start meeting around 1600 GMT.

But euro zone leaders might meet on Thursday night, after
the end of the first day of summit talks, if an agreement is
within reach, they said. Leaders could also hold of bilateral
meetings on Thursday night if there was a chance of a deal.

Involving the IMF in the euro zone divides supporters and
opponents of closer European integration.

Luxembourg Foreign Minister Jean Asselborn told
Deutschlandfunk German radio that calling on the IMF for
financial aid would damage the euro.

By giving up responsibility to the IMF for the health of a
euro zone member, he said, they would be moving from “political
psychology” to indulging in “political psychiatry”.

France has until now resisted any role for the
Washington-based lender inside the common currency area, saying
it would be a political humiliation and signal to markets that
the euro zone was incapable of solving its own problems.

But diplomats said Paris now seemed willing reluctantly to
concede a role for the IMF as the price for securing German
backing for a rescue mechanism.

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WRAPUP 2-Divided EU seeks pre-summit deal on Greek debt