|French President Nicolas Sarkozy speaks during an extraordinary European Union summit at the European Council headquarters in Brussels on May 7. AFP photo|
BRUSSELS (AFP) – Europe's leaders raced against an Asian clock on Sunday, hoping to lift financial markets when they open with a new crisis fund for debt-ridden euro countries and support from their central bankers.
Ahead of emergency finance ministerial efforts on a "watertight" defence against predatory threats to commercial banks and wider economic recovery, European Union officials scrambled to prepare the scope of their latest firewall.
An EU diplomat told AFP that a kind of "bank" would be set up with unused funds from the bloc's budget, which would then serve as "base capital on which to borrow 60 billion euros (76.5 billion dollars) on the bond market."
The source said that would be supported by a "gesture" from the politically independent Eurpean Central Bank, presented as a signal that it would intervene to buy euro governmental debt, what traders and analysts refer to as the 'nuclear' option.
Taken together, the latest bid to stabilise what Italian Prime Minister Silvio Berlusconi has described as a "state of emergency" for the 16 countries wedded in currency union could easily outstrip the unprecedented Greek bailout, due to be transferred to Athens within days.
French President Nicolas Sarkozy and Berlusconi each pulled out of World War II commemorations in Moscow to pull strings on the crisis, although German Chancellor Angela Merkel said she would attend the Red Square parade..
European Commission officials were massaging detailed proposals to "preserve financial stability in Europe" through until a meeting of its executive starting at 1:00 pm (1100 GMT), before putting them to the 27-nation bloc by 1300 GMT.
"We have several instruments at our disposal and we will use them," commission chief Jose Manuel Barroso said.
Berlusconi said early on Saturday that ECB chief Jean-Claude Trichet had not ruled out moves that could trigger a debt-buying spree, although Trichet, typically coy, laid "responsibility" at the door of the EU's political masters and the Commission.
Diplomats said that powers intended for "exceptional circumstances," that previously allowed the EU to help non-euro members like Hungary, Latvia or Romania, could be invoked to facilitate the scheme.
A chain of European debt sent shares tumbling across the globe last week and has left EU banks in the firing line as investors flee amid growing fears that eurozone governments will be unable to balance their books over coming years.
"I am very concerned about what's happening in Europe," US President Barack Obama said in a pre-recorded interview released Saturday.
Canadian premier Stephen Harper, who hosts G20 leaders next month in Toronto, offered greater solidarity following crunch talks between G7 partners, arguing that "this is not a crisis of the financial sector but a financial crisis affecting some governments."
He spoke in Berlin at a joint news conference with Merkel, who wants the new fund to send "a very clear signal" to markets to back off.
"Between now and Sunday night we will have a watertight line of defence," euro finance chief Jean-Claude Juncker also said after euro leaders gave the order to act during late-night talks in Brussels on Friday.
Barroso insisted that these efforts "will be done under the existing financial possibilities in the community budget," underscoring doubts among non-euro countries over the longer-term impact on taxpayers given the involvement of budgets paid into by all 27 EU members.
Labour Chancellor Alistair Darling will speak for Britain during Sunday's ministerial meeting as talks on power-sharing between two political rivals unfold back in London, and can expect to be pressured on Britain's refusal in March to entertain eurozone curbs, which critics say cost Europe dearly.
"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.
European Greens figureheads Rebecca Harms and Daniel Cohn-Bendit said leaders had waited until "the brink of the abyss" and urged Europe to go further still, by creating a "genuine European Agency for Debt and Investment which would manage the issuance of eurobonds."
As the major EU buyer of European governmental debt, its biggest economy, Germany, has the most to lose, and has changed tone substantially since being accused of foot-dragging over Greek loans, due to be transferred to Athens within days.
Having signed up to a German-led push to "accelerate" public deficit reduction plans, Portugal announced on Saturday that a raft of cuts would be brought forward there.