EU debt crisis summit opens amid pressure to save euro

AFP - EU leaders opened a crunch summit on the debt crisis Thursday mired in divisions over a treaty change demanded by Germany, and undermined by an ECB warning there will be no big boost in rescue funding.

European Central Bank president Mario Draghi, who arrived late in Brussels for pre-summit talks with a restricted power group of Germany, France and leading EU officials, sent stock markets falling after saying action to buy up the sovereign bonds of debt-wracked countries was "limited" and "temporary."

Markets have been looking to see how European Union leaders would come up with a promised trillion-euro emergency firewall to save Italy or Spain if sucked in like Greece and others beforehand.

Italian stocks fell a steep 4.29 percent, and the euro also lost value as investors sold their holdings of the crisis-hit currency.

A difficult evening looked even harder as five of 27 EU states, including Britain, came out strongly against a drive for a full rewrite of the European Union treaty.

Germany and France have argued this is the way to reassure markets that eurozone governments will in future live within their means.

US President Barack Obama questioned whether Europe's leaders can collectively "muster the political will" to solve a crisis that Russian counterpart Dmitry Medvedev also said risked hurting the global economy.

Even Pope Benedict XVI said a prayer for the EU.

Earlier, the ECB cut interest rates for a second time and eased further access and repayment conditions for bank funding, on the day the European Banking Authority (EBA) in London increased banks' estimated needs under a recapitalisation drive.

Europe's banks must raise 114.7 billion euros ($152.5 billion) in new capital to restore stability and confidence, the EBA said.

Draghi, though, said a plan for national central banks to fund the IMF, which sources said could inject up to 200 billion euros into bailout funding for Italy or Spain if required, would raise "complex legal issues."

He was adamant that the ECB must not be used simply to print money.

Leading the charge for treaty change, French President Nicolas Sarkozy warned there would be no "second chance" to save the eurozone and German Chancellor Angela Merkel said leaders must restore "credibility."

But British Prime Minister David Cameron vowed he would torpedo moves to change the rules across the EU to suit the eurozone.

"If I can't get what I want, I will have no hesitation in vetoing a treaty at 27 because I am not going to go to Brussels and not stand up for our country," he said.

Cameron has stressed that powers cannot pass from London to Brussels without a referendum.

Triple A-rated eurozone Finland also put up blocks, as did Poland, Sweden and Romania.

Obama said Europe's leaders recognised "the urgency of doing something serious and bold" but added: "The question is whether they can muster the political will to get it done."

Berlin and Paris want to impose stricter fiscal rules including legal or constitutional limits on deficits and automatic penalties for eurozone nations that overspend.

They also propose a "new, common legal framework" to boost financial and labour market regulation, the harmonisation of the corporate tax base and the imposition of a tax on financial transactions.

The summit is facing tough obstacles, officials said, not least Germany's refusal to settle for anything short of full treaty change.

The pressure is on after ratings agency Standard & Poor's on Wednesday put a number of large European banks on review and placed the European Union on watch for a downgrade of its AAA credit rating -- just days after it issued an identical warning to nearly all eurozone countries.

On arrival for pre-summit talks, IMF chief Christine Lagarde pledged that her institution would "participate" in the eurozone's efforts, calling for "decisive" and "coordinated" action.