The much awaited two-day summit of European leaders opened in Brussels on Thursday, aiming to find ways to resolve the sovereign debt crisis threatening the single currency eurozone. Nonetheless, European leaders remain divided over how to tackle the situation.
The summit is likely to be dominated by discussions on means to resolve the ongoing debt crisis in the eurozone, including Eurobonds, demands by Greece to renegotiate the terms of its bailout, eurozone banking union and a growth pact.
The leaders are initially expected to discuss whether eurozone's temporary EFSF rescue fund and a future permanent ESM bailout fund could be used to buy Spanish and Italian government bonds to bring down the steep borrowing costs.
Spanish Prime Minister Mariano Rajoy had warned Wednesday that his country will not be able to finance itself for long at the high rates it is currently paying and urged the European Union to move quickly to bring the rates to sustainable levels.
Spanish 10-year bonds yields surged almost 7 percent yesterday, which is seen as unsustainable by analysts. Italy's borrowing costs also jumped on Wednesday amidst growing concerns if the country would be next in line to seek a bailout.
Pleas by Spain and Italy for initiating collective steps to ease the situation have so far received cool responses from fellow-member states, particularly Germany. Interestingly, analysts believe the economies of the two nations are too big to be bailed out.
German Chancellor Angela Merkel remains firm in her opposition to pooling eurozone debts by issuing common bonds, and urged fellow eurozone members not to expect a quick fix to the lingering debt crisis. She believes fiscal integration and stronger competitiveness, coupled with EU's ability to control and monitor national budgets as well as debts, are enough to promote sustained growth.
Merkel in an address to the German parliament on Wednesday insisted sharing of debt liabilities among eurozone members would be possible only after the establishment of a truly fiscal and political union that allows the EU to control and monitor budget plans of member nations.
Nevertheless, French President Francois Hollande told reporters ahead of the summit that he expects European leaders attending the summit to make serious efforts to initiate swift steps to address the high borrowing costs of debt-stricken nations.
"I have come here to get very rapid solutions to support countries in the greatest difficulty on the markets even though they have made considerable efforts to restore their public finances," Hollande said Thursday.
Incidentally, the collective eurobonds move to keep borrowing costs of debt-stricken eurozone states down has the backing of France, Italy and Spain, the three large eurozone economies after Germany.
Separately, British Prime Minister David Cameron voiced his strong support for a 130 billion-euro stimulus package aimed at promoting growth, as he arrived in Brussels for the summit. Regarding other issues, he said there were "hard decisions for the eurozone countries to make and we should be encouraging them to go ahead".
Earlier this week, European Union authorities unveiled a report containing proposals for securing the stability of the Union by enforcing tighter fiscal integration with budget controls across the eurozone and establishing a European banking union.
The proposed measures enhance the existing power of European Union in Brussels over the fiscal policies of the eurozone member-states. But experts have already raised concerns that the report does not contain any suggestions for addressing the current debt problems being faced by several eurozone members.
The report outlines a 10-year plan aimed at closer fiscal integration of member-states, and recommends considering the idea of issuing collective eurobonds for resolving the ongoing eurozone debt crisis. Merkel had responded strongly to the proposal on Tuesday, saying "I don't see total debt liability as long as I live."
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