Agreement On Debt Crisis Eludes EU Leaders

European political leaders failed to come to agreement over the weekend on key issues to try to stem the debt crisis that threatens to spread from the smaller economies of Greece and Portugal to Europe's third- and fourth-largest economies: Italy and Spain. EU leaders vowed to keep working toward a wide-ranging plan at a second meeting Wednesday.

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ARI SHAPIRO, HOST:

This is MORNING EDITION, from NPR News. I'm Ari Shapiro.

RENEE MONTAGNE, HOST:

And I'm Renee Montagne. It was only three months ago that European leaders came up with a solution to stem the debt crisis. That plan failed. This week they're meeting again, hoping to come up with a new grand plan after they failed over the weekend to come to agreement on key issues. The euro crisis continues to worsen, and the big fear is it may spread from the smaller economies of Greece and Portugal to Europe's third and fourth largest economies, Italy and Spain. NPR's Eric Westervelt reports from the summit in Brussels.

ERIC WESTERVELT, BYLINE: The escalating European debt crisis has consistently rattled financial markets, prompted unprecedented austerity measures in Greece and elsewhere, and sparked riots in Athens and street protests in other European capitals. On arriving to the talks here Sunday, Greece's Prime Minister George Papandreou told reporters his country is making enormous, painful sacrifices to try to get its fiscal house in order.

PRIME MINISTER GEORGE PAPANDREOU: But it's been proven now that the crisis is not a Greek crisis; the crisis is a European crisis. So now is the time that we as Europeans need to act decisively and effectively.

WESTERVELT: But no decisive action was taken on big unresolved issues, including how much of a loss banks will have to take on depreciating Greek bonds, and how to best leverage the eurozone's rescue fund so that Italy and Spain don't see their borrowing costs spiral out of control, as happened to Greece, Portugal and Ireland, who each had to get bailouts.

EU President Herman Van Rompuy vowed that that a broad plan would be agreed to by the end of Wednesday during a second EU summit. He offered a gloomy assessment of current economic conditions and highlighted the need to find at least some common ground by mid-week.

HERMAN VAN ROMPUY: Slowing economic growth, rising unemployment, pressure on the banks, and risks on the sovereign bonds. Our meeting of today and Wednesday are important steps - perhaps the most important ones - to overcome the financial crisis - even if further steps will be needed.

WESTERVELT: It's a pattern that's played out again and again during the European debt crisis: economic realities prompt political leaders to promise a comprehensive solution only to fall short amid bickering, national self-interest, and bureaucratic inertia. And throughout the crisis, if plans are agreed to, too often by the time they're implemented the financial markets have already moved on to new worries and the proposed remedy arrives virtually obsolete.

German Chancellor Angela Merkel warned that whatever agreement comes this week, it will merely mark another step towards a solution, not a cure-all.

CHANCELLOR ANGELA MERKEL: (German spoken)

WESTERVELT: It's not a currency crisis we're facing, but a debt crisis. That's why Wednesday will not be the last step we have to take, Merkel said. We're going to have to take a great many steps, and many of those must be taken together. Re-capitalizing the banks alone makes no sense. We must also solve Greece's woes on a realistic, sustainable, long-term basis, she said.

Greece is not the only worry. Merkel and French President Nicolas Sarkozy issued strong public warnings to Italy after the two met with Prime Minister Silvio Berlusconi on Sunday. Merkel said the Italians must reduce their debt. We made it very clear that Italy is a big, important partner for the euro area, she said, and that everything needs to be done to live up to this responsibility.

(SOUNDBITE OF CHATTER)

WESTERVELT: Over the weekend in Frankfurt, at the headquarters of the European Central Bank, protesters with the ad hoc Occupy Frankfurt movement camped out beneath a giant lighted symbol of the euro. Twenty-nine-year-old landscape designer Muhammed Yildiz said it's not alarmist to warn that European debt woes and the crisis in global capitalism could easily bring about a shattering recession that could make the 2008 crisis look mild. The landscaper said his clients - well-heeled bankers and financial services types in the Frankfurt suburbs - should come down and join the movement.

MUHAMMED YILDIZ: (German spoken)

WESTERVELT: Everyone should come down and be here and contribute, rich or poor, because in the end money won't be any help, Yildiz warned. It won't be worth the paper it's printed on. The only currency of any worth, he said, will be brotherliness and any practical real world skills you have to offer. Eric Westervelt, NPR News, Brussels.

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