BRUSSELS, Belgium — European leaders outlined plans to aid banks and ruled out tapping the European Central Bank’s balance sheet to boost the rescue fund, inching toward a revamped strategy to contain the Greece-fueled debt crisis.
Europe’s 1 3th crisismanagement summit in 21 months also explored how to strengthen the International Monetary Fund’s role. The leaders excluded a forced restructuring of Greek debt, sticking with the tactic of enticing bondholders to accept losses to help restore the country’s finances.
“Work is going well on the banks, and on the fund and the possibilities of using the fund, the options are converging,” French President Nicolas Sarkozy said during a break in the Brussels summit Sunday. “On the question of Greece, things are moving along. We’re not there yet.”
Greece’s deteriorating finances have narrowed Europe’s room for maneuver in battling the contagion, which threatens to pitch the country into default, rattle the banking system, infect Spain and Italy, and tip the world economy into recession.
The complete blueprint won’t come together until the next summit, on Wednesday. Like Sunday’s meeting, it will start with all 27 European Union leaders before the 17 heads of euro economies meet on their own.
Europe has claimed victory over the crisis before. A plan in March was billed as a “comprehensive” strategy. A July accord on a second bailout for Greece and more powers for the rescue fund was hailed at the time as the “final package, of course,” by Luxembourg Prime Minister Jean-Claude Juncker.
Bank capital needs will be met first by banks themselves, then by national governments, the European officials agreed.
Only when national efforts fail can governments tap the main rescue fund, the $607 billion European Financial Stability Facility, for cash to channel to banks.
“What I can tell you is that this only will happen under strict conditions,” Dutch Prime Minister Mark Rutte said.
Germany pushed through one of its main summit aims, defeating French efforts to bulk up the rescue fund by enabling it to borrow potentially limitless sums from the independent central bank.
Policymakers are headed toward using the rescue fund to guarantee government bond sales as a way to extend its reach.
A second option is to set up a European Financial Stability Facility-insured fund that would seek outside investment in troubled bonds.
The goal is to complete the technical details within 24 hours, a European official said. The next summit will consider the two options as well as ways of getting the International Monetary Fund to boost its rescue role, the official told reporters.
Italy, with debt of 119 percent of gross domestic product, came under pressure to find more savings to be eligible for European help in fending off speculators.
German Chancellor Angela Merkel made clear that Italy cannot count on unrestricted European support in what she called a “conversation among friends” with Italian Prime Minister Silvio Berlusconi.
“Confidence won’t result merely from a firewall,” Merkel said. “Italy has great economic strength, but Italy does also have a very high level of debt, and that has to be reduced in a credible way in the years ahead.”
After a year of sparring with the European Central Bank over burden sharing for bondholders, Merkel was on the central bank’s side this time, sparing it from a role in financing state deficits.
What wasn’t decided is the fate of bond purchases by the Frankfurt-based central bank. The central bank has bought $227 billion of bonds, justifying the purchases as a way of smoothing markets and helping transmit its interest-rate decisions through the economy.
Central bankers have expressed reluctance to step up the purchases, which started with Greece, Ireland and Portugal last year and widened to Italy and Spain in August as those markets came under attack.
“One shouldn’t demand more from the ECB than it can achieve according to its statutes,” Austrian Chancellor Werner Faymann said Sunday.
Information for this article was contributed by Stephanie Bodoni, Jonathan Stearns, Mark Deen, Chiara Vasarri, Tony Czuczka, Anabela Reis, Fred Pals, Thomas Penny and Matthew Campbell of Bloomberg News.
Front Section, Pages 5 on 10/24/2011