Europe races to flesh out new crisis fund

French President Nicolas Sarkozy (L) walks with German Chancellor Angela Merkel prior to an extraordinary European Union summit at the European Council headquarters on in Brussels on Friday. Eurozone leaders opened an emergency summit called to sign off on an unprecedented bailout for debt-ridden Greece, but with global markets suffering a rout. Photo: AFP

European officials scrambled on Saturday to fix the size and scope of a new crisis fund designed to head off market predators threatening eurozone banks and wider economic recovery.
"The European Commission is working today on the proposal it will make to the council for the European Stabilisation Mechanism to preserve financial stability in Europe," a Brussels spokesman said.
The EU executive's cabinet will meet at 1:00 pm (1100 GMT) on Sunday "to discuss and adopt that proposal" ahead of an emergency meeting of finance ministers from the 27-nation bloc at 1300 GMT.
While bailouts are banned by EU treaties, sources say Brussels wants to use powers in "exceptional circumstances" that previously allowed it to help non-euro members like Hungary, Latvia or Romania, by borrowing on the bond market.
Diplomats said that 70 billion euros (90 billion dollars) could be raised in this way.
Italian Prime Minister Silvio Berlusconi said meanwhile that European Central Bank chief Jean-Claude Trichet was not ruling out a so-called nuclear option, introducing emergency provisions for the buying of government debt.
Trichet himself remained coy on the issue, saying only that "this mechanism is the responsibility of the EU council (of leaders) and of the European Commission."
Leaders of the 16 euro currency countries ordered that a new fighting fund be ready for Monday trading, after a chain of debt running through continental Europe sent shares tumbling across the globe last week.
European banks are in the firing line as investors flee amid growing fears that eurozone governments will be unable to balance their books over coming years.
"Between now and Sunday night we will have a watertight line of defence," euro finance chief Jean-Claude Juncker said, as EU officials stepped up efforts to mobilise "all available means" behind the fund.
In a bid to calm agitated markets, commission chief Jose Manuel Barroso also insisted in the early hours of Saturday that these efforts "will be done under the existing financial possibilities in the community budget."
However, diplomats were still eagerly awaiting sight of the details later in the day, with non-euro countries particularly eager to learn of the likely longer-term impact on their share of EU funding.
While a French diplomat said that qualified majority voting would see them passed by the EU ministers, some could have deep qualms should the potential increase for taxpayers to face future bills.
Another EU diplomat said that Conservative leader David Cameron, expected to lead a new government in London, would still have to consider whether risks to Britain's economy, given that the eurozone is its biggest trading partner, would not outweigh that fear.
According to analysts, as the major EU buyer of European governmental debt, the danger is most keenly felt in Germany, which had been accused of foot-dragging over Greek aid.
Its Chancellor Angela Merkel said the fund would send "a very clear signal" to markets to back off.
"Europe is faced with the same challenge from the Greek crisis as it faced in October 2008 after Lehmann Brothers fell," Christian de Boissieu, an economics professor at the Sorbonne in Paris, told AFP.
Daniel Gros, of the Brussels-based Centre for European Policy Studies, told La Libre Belgique newspaper that "German banks would collapse immediately" and the cost to the public purse in Berlin would be "unheard of" if the crisis deepened.
The ramped-up defence of the eurozone comes as its governments ready to send billions of euros in loans to debt-laden Greece within days.
Euro leaders also agreed to impose new curbs on speculators blamed for sustained and deliberate attacks, "accelerate" public deficit reduction plans across the board and "reinforce" rules limiting room for manoeuvre on broken budgets.
Portugal, for whom the cost of borrowing has also risen sharply like Greece, was first to announce a quickened pace of cuts on Saturday.
Currently 13 of the 16 currency partners are under excessive deficit surveillance, having breached set guidelines.