High Stakes For Europe, World Economy In Brussels

France and Germany are trying to persuade other European countries to sign onto a package of reforms aimed at shoring up the embattled euro. They're hoping to win agreement in time for Friday's big summit of European leaders in Brussels. A failure to reach agreement could send the wrong signal to the financial markets, which are already deeply worried about Europe's fiscal problems.

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And I'm Linda Wertheimer. It's a now-familiar pattern in Europe. Attempts to solve the continent's debt crisis lead to optimism and markets rise, but anxiety creeps in as analysts point out how very much work is still left to do. Europe is in another anxious phase now. Today the European Central Bank cut its key interest rate yet again - it's now down to one percent – in an effort to stimulate the economy and prevent a recession. And France and Germany are trying to persuade other European countries to approve reforms to preserve the embattled euro. They hope for agreement in time for tomorrow's big summit of European leaders. NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: As European leaders begin to gather in Brussels, they face a much tougher set of tasks than they have before. With interest rates rising even in rich countries, the financial markets are signaling they will no longer be satisfied with vague promises of reform down the road. Meeting in France yesterday, U.S. Treasury Secretary Tim Geithner described the challenges facing Europe this way.

SECRETARY TIMOTHY GEITHNER: Not just to put in a place economic reforms across Europe to create the conditions for stronger growth in the future, but to try to build a stronger architecture for fiscal union and fiscal compacts.

ZARROLI: There's already agreement among the major players about the direction Europe needs to go in. There's talk of beefing up the stabilization fund used to rescue heavily indebted economies. But French President Nicolas Sarkozy and German Chancellor Angela Merkel first want all 27 countries of the European Union to agree to greater supervision of their budgets.

Arvind Subramanian is a senior fellow at the Peterson Institute for International Economics.

ARVIND SUBRAMANIAN: In a sense, Friday is going to be about giving it kind of the stamp of EU-wide approval for the kinds of substantive points that they've agreed upon already.

ZARROLI: There's a lot at stake for Europe. Yesterday, rating agency Standard and Poor's warned it may downgrade the credit ratings of all EU countries, not just those that use the euro. That suggests the crisis could be spreading beyond the eurozone borders to countries like Switzerland and the United Kingdom. Still, any effort to push through reforms will require amending the EU treaty, and doing that so quickly will encounter resistance. Subramanian says that will send the wrong signal to the markets.

SUBRAMANIAN: The more the mixed signals, the more problematic it will be for markets in terms of being able to believe that these commitments will be adhered to.

ZARROLI: And if the markets lose any more confidence about Europe's ability to address the crisis, it would send interest rates on government debt higher across the continent. Perhaps with that in mind, European officials are already trying to manage expectations about the summit. One German official warned yesterday that whatever agreement comes out of tomorrow's summit, it will take until Christmas at the earliest to flesh out the details. Jim Zarroli, NPR News, Brussels.

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