BRUSSELS - Eurozone ministers sent Greece an C8 billion ($10.7 billion) Christmas rescue package Tuesday to stem an immediate cash crisis yet failed to resolve fears that the common euro currency might be doomed.
Stock markets around the world rose earlier in the day, hoping that intense pressure from the bond markets would finally force the 17-nation eurozone into quicker and more robust action.
But even as Italy's borrowing costs skyrocketed to a euro-era record, the 17 finance ministers only found a veneer of credibility to coat the euro's rescue fund with more leverage. They failed to increase the bailout fund to match earlier predictions and kicked other major financial issues -- like a closer fiscal union -- over to their bosses, the EU leaders meeting next week in Brussels.
The ministers did agree to use the fund to offer financial protection of 20 to 30 per cent to investors who bought new bonds of troubled eurozone nations, an effort to help those countries get back to borrowing on global markets again.
"We made important progress on a number of fronts," Jean-Claude Juncker, the eurozone chief, insisted late Tuesday. "This shows our complete determination to do whatever it takes to safeguard the financial stability of the euro."
The EU's monetary chief Olli Rehn said eurozone nations needed to work on many financial issues at once to ease global pressure on their currency.
"There is no one single silver bullet that will get us out of this crisis," Rehn told reporters.
But the question of how to beef up the leverage capacity of European Financial Stability Facility from its current C440 billion ($587 billion) to a hoped-for C1 trillion ($1.3 trillion) was not resolved. The fund is supposed to be a firewall that protects European nations from the financial chaos of their neighbours.
Fund chief Klaus Regling remained vague on how beefed up it was after Tuesday's meeting in Brussels, but assured reporters it was more than big enough to deal with Europe's immediate financial debt problems.
"To be clear, we do not expect investors to commit large amounts of money during the next few days or weeks," Regling said. "Leverage is a process over time."
Dutch Finance Minister Jan Kees de Jager said investors had appeared less eager than originally anticipated.
"It will be very difficult to reach something in the region of a trillion. Maybe half of that," he said.
Italy remained an enormous concern. Carrying five times as much debt as Greece, Italy was battered for the third straight day in the bond markets, seeing its borrowing rates soar to unsustainable levels of 7.56 per cent. Investors appear increasingly wary of the country's chances of avoiding default -- and making matters worse, the eurozone's third largest economy is deemed too big for Europe to bail out.
The ministers still insisted Italy's new prime minister would come through, saying he has promised to balance Italy's budget by 2013.
"We have full confidence that Mario Monti will be able to deliver this program," Juncker said.
The eurozone ministers also called on the International Monetary Fund for more resources to help further protect Europe's embattled currency. The IMF has only about $390 billion available to lend, which wouldn't be anywhere near enough to rescue Italy.
The eurozone ministers agreed to seek new ways to increase the resources of the IMF through bilateral loans that could be used to protect EU nations facing financial trouble.
Many economists say the 17 nations that use the euro have little choice but to have closer co-ordination of their spending and budget policies.
"If the eurozone is to survive, there needs to be more fiscal union," said Eswar Prasad, an economics professor at Cornell University.
But he suggested the IMF could work with institutions like the European Central Bank. Funneling money through the IMF would be more politically palatable for the ECB than directly aiding individual countries.
French Finance Minister Francois Baroin said it was "evident" that the eurozone was moving towards greater fiscal convergence and better co-ordination of budgets. He said, far from indicating a loss of national sovereignty, these moves would guarantee countries' sovereignty by helping them bring down their debt burdens.
"Reducing our debts is the best way to guarantee our sovereignty," he told reporters.
Eurozone countries have enormous debts that must be refinanced -- with C638 billion ($852 billion) coming due in 2012 alone, 40 per cent of which needs to be refinanced before May, according to Barclays Capital.
A failure of the euro would lead to drastic consequences around the world. Bank lending would freeze, stock markets would likely crash, European economies would go into a freefall and the U.S. and Asia would take big hits to their economies as their exports to Europe collapsed.
Belgian's finance minister saw the prospects of a two-speed Europe, where if no common progress can be made among the 27 EU nations "you cannot block those that share the same currency" from making decisions on their own.
The head of Germany's exporters association, meanwhile, urged an even more radical solution: having Greece and Portugal leave the eurozone. BGA President Anton Boerner called it the only way those two nations can spur the growth needed to overcome their crippling debts.
Analysts were doubtful that new cash for Greece would bring the financial relief that Europe craves.
"The marginal impact of these bits of 'good news' should be limited at best and investors will still cast a nervous eye towards this week's bond auctions," said Geoffrey Yu, an analyst at UBS.
