Europe’s heads clash ahead of crucial summit

Julian Harris
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EUROPEAN leaders remain on a collision course ahead of crunch talks that commence tomorrow in Brussels, with little sign of compromise between struggling Eurozone states and countries that may have to foot the bill for more bailouts.

German Chancellor Angela Merkel was yesterday quoted as having assured her coalition partners that shared debt liability in the Eurozone would not happen “as long as I live”.

Earlier in the day reports in Italy said that Prime Minister Mario Monti would threaten to resign unless eurobonds – one form of debt sharing – were introduced.

Several means of easing the debt burden on troubled Eurozone states such as Spain and Italy will be on the table when leaders meet for the two day summit, but Merkel has been stubborn in her resistance this week – insisting there are no easy solutions to the crisis.

Yet Germany, the EU’s biggest economy and paymaster, appeared ready to budge on using the Eurozone’s rescue funds more flexibly to help banks and reassure investors spooked by an increased risk of facing write-downs on government bonds.

The parties in Merkel’s centre-right coalition have proposed allowing a new permanent rescue fund – called the European Stability Mechanism (ESM) – to funnel aid directly to national bank rescue funds

And a leading ally of Merkel told a closed-door meeting of her conservatives that Eurozone governments were discussing removing the preferred creditor status of the bloc’s new permanent rescue fund.

Neither Merkel nor finance minister Wolfgang Schaeuble spoke out in favour of such a move at the meeting, sources said, leaving it unclear whether the idea had the firm backing of the German government.