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EU Fin Mins Meet Amid Fears Of Debt Crisis Spillover-- Euro-zone finance ministers seek agreement on several crisis-fighting measures
-- Meeting comes as implementation of July 21 agreement held up by sparring national interests
-- U.S. Treasury secretary Geithner to join talks, likely to plead for decisive action
-- Discussions have been held at looking to leverage euro-zone rescue fund
WROCLAW, Poland -- Euro-area finance ministers will gather here Friday to seek agreement on several crisis-fighting measures left unresolved despite weeks of talks, amid mounting worries that governments lack the political will to prevent financial catastrophe from striking the southern euro zone.
This is the first meeting of finance ministers since a July 21 accord by heads of government to expand the 17-member bloc's bailout fund, the European Financial Stability Facility, and extend a second round of lending to Greece.
Implementation of the deal has been held up by sparring national interests, most notably a demand by Finland for Greek collateral that has led other member states to ask for the same.
The euro zone's failure to quell the debt crisis has sparked frustration from the International Monetary Fund and the U.S. and volatility in financial markets.
U.S. Treasury Secretary Timothy Geithner will attend Friday's meeting of the Economic and Financial Affairs Council, representing the 27 EU finance ministers, for the first time. He is expected to plead with the Europeans to take more decisive action to prevent Greece's debt problems from infecting banks across Europe and possibly spreading to the global financial system.
In a coordinated move Thursday, five major central banks agreed to pump dollars into the European banking system by arranging three new funding operations.
The ECB said that it will be joined by U.S. Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank to conduct three U.S. dollar liquidity-providing operations.
Europe's banks are increasingly relying on the European Central Bank for funding, finding it difficult to borrow dollars as U.S. institutions pull back capital in response to the region's escalating debt crisis.
Euro zone officials have held discussions recently to look at ways to leverage up the 17-member currency bloc's temporary bailout mechanism to 'significantly increase' its firepower, a European Union source said Thursday. The person, who was directly involved in a recent discussion of the proposal, told Dow Jones Newswires the idea has the support of some 'bigger euro-zone member states' and that European Commission officials believe it's 'an idea worth looking at.'
The euro zone is currently in the process of ratifying the move to increase the effective size of the European Financial Stability Facility, the region's rescue fund, to EUR440 billion from a previous EUR250 billion. They are also in the process of expanding the EFSF's powers by allowing it to provide funds for bank recapitalizaton, buy bonds in the secondary market and make credit lines available to member states who don't have bailout programs.
The tightening liquidity comes as fears have spiked that Greece could default and be kicked out of the euro zone, which EU leaders have said could have severe political and economic consequences for the entire European Union.
Markets took some comfort from a statement by German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou, who said after a three-way call Wednesday night that 'the future of Greece is in the euro zone.' That appeared to raise hopes the governments would agree to disburse the next tranche of aid due to Greece, despite new data showing the country isn't on track to meet budget targets agreed with the EU and the IMF.
Officials are also expected to discuss the possibility of debt issued collectively by the euro zone that can be used as funding for weaker members of the currency bloc. The commission will study the idea in the coming weeks, but officials say it will be a while before it is formally proposed, if at all.
Talks on Finland's collateral demands have focused in recent weeks on a plan to provide non-cash, Greek government assets to countries willing to pay for it; officials are discussing whether that should happen through cash sent to the EFSF or reduced payments of the EFSF's profits.
But the plan isn't likely to be ready for sign-off at this week's informal gathering in Poland, euro-zone officials said. Officials are still trying to ensure that 'negative pledge' clauses in some Greek bond contracts -- which prevent any creditors from getting favorable treatment -- wouldn't be triggered by Greece handing over collateral to some euro-zone governments, one official said.
The July 21 deal is also contingent on Greece's private-sector creditors agreeing to exchange their bonds maturing before 2020 for longer-dated bonds, providing EUR135 billion in additional financing to the country.
Those elements have proved to be stumbling blocks. Negotiations between the financial institutions that own Greek debt and the government may not yield the targeted amount, officials warn. Meanwhile, opposition to the agreement in national parliaments is rising: Members of Germany's national parliament have threatened to oppose changes to the EFSF, and Slovak Parliament Speaker Richard Sulik said he would fight to delay a vote on expanding the EFSF, at least until the end of the year.
Austria's parliament Wednesday rejected a government attempt to fast-track the vote, which now isn't expected before October.
Olli Rehn, the EU's economic policy commissioner, said Wednesday that he expects the ministers in Poland to 'overcome remaining hurdles and get the job done.'
'Growth and unemployment are now under extreme pressure from the negative ramifications stemming from the continued market turbulence related to the sovereign debt crisis,' Rehn said Wednesday.
'We must be much better in the implementation of our decisions,' he said.
The U.S. and China are asking for the same.
In interviews last week, Geithner said he would like to see more political will from European leaders to end the sovereign debt crisis. Geithner said it was 'absolutely' in the U.S. interest that the euro survive as a currency.
Meanwhile, Chinese Premier Wen Jiabao voiced support for Europe Wednesday, but offered no new specific help for the debt-battered continent.
By Matthew Dalton and Riva Froymovich, Dow Jones Newswires; +32 2 741 1489; riva.froymovich@dowjones.com
(Laurence Norman contributed to this article)
(END) Dow Jones Newswires
September 15, 2011 14:45 ET (18:45 GMT)