Germany puts its foot down over rescue deal

PLANS to save the eurozone were at risk of collapse after talks broke down at the crucial summit between EU leaders, it was reported last night.

The latest crisis emerged as Germany made fresh objections to the proposed rescue deal for struggling indebted countries.

The International Monetary Fund (IMF) was also said to have signalled it was considering intervening, which could result in British taxpayers paying to support the troubled single currency. The summit risked going down as another failure in Europe’s fight to stem its two-year-long debt crisis.

Markets had been looking to the European Union’s grand plan – promised in time for tomorrow – for a turnaround in the debt crisis that will avert a potential global recession.

However, the EU’s 27 finance ministers and the 17-nation Eurogroup will not now meet today, although a full emergency heads-of-government summit will happen. Officials have admitted many details of any final deal will not be resolved immediately and will be postponed until another meeting of EU finance ministers this coming weekend.

The summit is due to set out plans to tackle Greece’s massive debt burden and expand a bail-out fund intended to support larger EU economies such as Italy and Spain.

But a series of rows have yet to be resolved, in particular the role of the European Central Bank (ECB) in the bailing out of struggling eurozone countries.

A draft agreement presented to leaders proposed that the ECB should go on buying the bonds of troubled members, effectively lending money to them directly – something German chancellor Angela Merkel, who is facing strong domestic opposition to the deal, has publicly rejected as “not acceptable to Germany”.

Meanwhile, there were fears that the Italian government could collapse over a dispute about austerity measures demanded by other EU governments.

The Italian premier Silvio Berlusconi is currently locked in a high-stakes battle with coalition partners to muster support for emergency growth measures demanded by the European Union.

EU officials say they will not present their comprehensive plan if Italy doesn’t agree to new economic measures they demanded on Sunday.

But Mr Berlusconi has been unable to get his key ally in parliament, the Northern League, to accept an increase in the pension age. The Northern League says it will alienate its constituency of workers in the productive north.

Party leader Umberto Bossi conceded that the government was at risk.

“Let’s say the situation is difficult, very dangerous,” Mr Bossi said.

Another issue the summit is meant to agree on are ways to bolster the financial power of bail-out funds intended to underwrite governments in Italy and Spain if they struggle to raise money on international markets.

One proposal is a Special Investment Vehicle, a fund that raises money from investors including wealthy governments and the IMF.

Meanwhile, David Cameron yesterday tried to brush off the biggest-ever Tory rebellion over Europe, as he faced accusations that his government was split on the issue.

The day after 79 back-benchers defied a three-line whip by voting in favour of a referendum on British membership of the European Union, Mr Cameron tried to play down the divisions in the party and the most significant assault on his authority since he became Conservative leader six years go.

“There’s, on my part, no bad blood, no rancour, no bitterness. These are valued Conservative colleagues. I understand why people feel strongly, and we will go forward together and tackle the difficult decisions that the country faces,” the Prime Minister said.

“But you have to do the right thing and give a lead in politics, and that was what yesterday was about.”

But the Prime Minister’s spokesman was forced to play down suggestions of a rift in the coalition government after Education Secretary Michael Gove and Lib Dem Deputy Prime Minister Nick Clegg appeared at odds on the issue.

Mr Gove told the BBC he would like to see more powers taken from Brussels to Westminster during “this parliament”.

He said: “We are already winning powers back – we need to win more and that process will require careful negotiation, but what we are fortunate in having is a Conservative Party that is united as never before behind that renegotiation.”

His stance contrasted with that of Mr Clegg, who said: “I think it is a monumental distraction from what is, in effect, an economic firestorm on our doorstep to tie ourselves up in knots late at night in Westminster about a treaty or inter-governmental conference that might never happen.”

He added: “Eurosceptics need to be quite careful for what they wish for, because if they succeed – and they won’t succeed, as long as I’m in government – to push this country towards the exit sign, let’s be clear: the people that will be damaged is British families, British businesses, British jobs, British communities, and I won’t let that happen.”

Shadow foreign secretary Douglas Alexander wrote to the Foreign Secretary, William Hague, warning that “disunity… between and within the coalition parties is already undermining Britain’s credibility in ongoing European discussions”.

He demanded to know whether Mr Cameron was speaking for the government or the Conservative Party when he raised the prospect of a renegotiation of the UK’s EU membership.