Spain has followed France in announcing it will support a Palestinian bid for enhanced status at the United Nations when the issue goes to a vote of the General Assembly.
Within hours, however, Britain indicated on Wednesday that it would abstain unless the Palestinians met its conditions for a “yes” vote.
After the announcements from Paris and Madrid, the Palestinians could have been forgiven for spotting an emerging consensus among the Europeans in favor of its bid on Thursday to achieve recognition as a non-member observer state.
But Britain’s likely abstention served to underline the continuing divisions within Europe, some tactical and others fundamental, over how to advance the Mideast peace process. European governments remain almost equally divided over how to address the issue of upgrading Palestine’s status. The United States has made it clear it will veto the proposal.
European governments moved toward a confrontation over a second rescue package for Greece, just as a dimming fiscal outlook in Portugal opened a new front in the debt crisis.
Euro leaders left a Brussels summit late yesterday with no accord over how to plug Greece’s widening budget hole and German Chancellor Angela Merkel voicing frustration with the Athens government’s failure to carry out an economic makeover.
“Greece’s debt sustainability is especially bad,” Merkel told reporters. “You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.”
Bargaining with Greece over a debt writedown and its economic management overshadowed efforts to point the way out of the financial crisis. EU chiefs agreed to speed the setup of a full-time 500 billion-euro ($659 billion) rescue fund and signed off on a German-inspired deficit-control treaty.
The summit was the 16th in the two years since the Greek debt emergency provoked a Europe-wide drama, leading to unprecedented aid packages for Greece, Ireland and Portugal and shattering European faith that the common currency was indestructible.
After the gathering of European leaders, EU President Herman Van Rompuy convened a smaller group, including Greek Prime Minister Lucas Papademos and European Central Bank Executive Board member Joerg Asmussen, to weigh the next steps on Greece.
Struggling banks snapped up €489 billion ($639 billion) in cheap loans from the European Central Bank on Wednesday, a sign of just how hard or expensive it has become to borrow from each other.
The huge demand for newly available three-year loans comes as fears rise that heavily indebted European governments could default and force banks and other bond holders to take big losses.
The loans to 523 banks surpassed the €442 billion ($578 billion) in one-year loans extended in June 2009, when the global financial system was reeling from the collapse of the U.S. investment bank Lehman Brothers. It was the biggest ECB infusion of credit into the banking system in the 13-year history of the euro.
The ECB wants banks to use the money to help pay off or refinance some €230 billion ($300 billion) in existing loans early in 2012. Without the special support from the ECB, banks would have had to cut back on loans to businesses and further squeeze the European economy.
While the loans will help stabilize banks and make it easier for them to lend to businesses, they do not attack the root of Europe’s financial crisis — heavily indebted governments face unsustainable borrowing costs. Many economists believe that to solve that problem the ECB needs to become the lender of last resort to European governments, buying up their bonds in large quantities in order to lower their borrowing costs. ECB President Mario Draghi has said governments should not depend on a central bank bailout.
Markets initially rose after the amount of the ECB borrowing was announced; it was far higher than the €300 billion ($392 billion) expected. But the optimism faded as investors weighed the broader problems facing Europe’s economy and financial system. The broad Stoxx 50 index of European shares fell 0.5 percent. Indexes in Germany and Italy closed about 1 percent lower. The euro fell nearly 2 cents, to $1.3023 from $1.3198 earlier Wednesday. U.S. stocks traded lower as well.
“The good news is, the ECB’s efforts to increase liquidity are working,” said Jennifer Lee, an analyst at BMO Capital Markets. “The bad news is, high demand for the loans creates worries that banks are urgently in need of funds to boost liquidity.”