By SARAH DiLORENZO, Associated Press
BRUSSELS (AP) — European leaders are locked in a fierce debate over how to solve the debt crisis that is killing off growth on the continent, including whether to ease up on the terms of Greece's bailout deal.
A European Union official says worsening economic conditions have made Greece's current bailout agreement an "illusion," but Germany is resisting any changes.
A narrow victory for the New Democracy party in elections over the weekend in Greece means that the country is more likely to stick to the harsh austerity terms of its €240 billion ($300 billion) bailout packages and avoid a chaotic exit from the euro in the very near future — an event many fear would destabilize Europe and send shockwaves around the world.
However, news of the election result has not given Europe the breathing space it needed to sort out its problems.
Greece's economy is still in a very vulnerable state. The country is in a fifth straight year of recession and could easily deteriorate to point where a default and euro exit are inevitable. It is looking to renegotiate some of the harsh austerity terms and conditions of the rescue loans it relies on to pay its bills — something that other European countries such as Germany are opposed to.
However, the EU official speaking in Brussels on Tuesday argued that the terms of Greece's bailout had to be renegotiated because poor economy has left Greece behind in meeting its targets.
The official, who spoke on condition of anonymity, citing policy, said that the goals of the agreement would not be changed: They remain to reduce Greece's debt to a level that is sustainable and reform its economy to make it competitive. But how those goals are achieved — and over what time period — is up for discussion.
These disagreements are in contrast to the united front leaders of the world's largest economies gathered for the G-20 summit in Mexico tried to present.
The presidents and prime ministers sought Tuesday to reassure the world that they would find a way to put out the debt-fueled economic wildfire. Still, the leaders seemed content to delay any major decisions for a while longer, releasing only a general statement that stopped short of committing any nations to greater spending unless conditions worsen and urging fiscal responsibility.
President Barack Obama said European leaders 'grasp the seriousness' of their debt crisis and are moving with 'heightened sense of urgency' to find a solution.
In a news conference following the summit in Los Cabos, Mexico, Obama said the economic problems in Europe won't be solved by the G-20 or the United States, but by European nations.
He said he was confident they could do that, but acknowledged the difficulty of getting all the separate legislatures to agree.
Meanwhile, heavily indebted Spain and Italy continue to see their borrowing costs rise, increasing pressure on their government finances and keeping alive fears that another big bailout might be needed. That would considerably strain the eurozone's ability to protect its members and keep the currency union together.
Finance ministers from the 17 countries that use the euro meet in Luxembourg on Thursday to discuss how best to solve the problem, which threatens to place ever greater burdens on national budgets and further destabilize the region's economies. Europe is a substantial trading partner with the rest of the world. If it falls into a deep recession sparked by a Greek exit of the euro or a massive bailout for Spain or Italy, orders for U.S. and Chinese goods are going to start falling off.
Here's a look at the latest developments in Europe:
The debate over whether Greece's bailout terms should be renegotiated is at the heart of Europe's crisis response. With economic conditions in Greece worsening by the day, the EU official said that said that renegotiating bailout terms — known as the "Memorandum of Understanding" — was only natural. He added that it was part of the normal process of assessing the progress of any country that has received an international rescue.