Spain reintroduced checks at the border with France ahead of the meeting, temporarily suspending the Schengen agreement. So far reports say 17 arrests have been made at the border and 43 people denied entrance because of previous police records involving "violent protest". Authorities want to avoid clashes staged by "anticapitalist" protestors who may travel from abroad for the event. However, students from Barcelona University are staging a "strike" today and have taken to the streets to protest education cuts announced by Mariano Rajoy's conservative government last month. Streets have been blocked by the demo in the centre of the city. Some 8,000 police are on the streets of Barcelona during the ECB meeting to prevent trouble. Snipers visible on rooftops, armoured vehicles and riot police at the ready and helicopters flying overhead. The sunny city is on lockdown with some twitter uses dubbing the Catalan capital "carcelona" - carcel means prison in Spanish. No signs of any trouble as yet.... Mr Draghi's predecessor, Jean-Claude Trichet (below) has told German TV that Europe is "only halfway" through the crisis. In an interview with he said: Hard work has been done, but we are only halfway, and a lot still has to be done [...] As the leader of the Governing Council which has taken all those difficult decisions, yes they are doing a very good job... Mario Draghi will tonight hold a private meeting with Prime Minister Mariano Rajoy in which the Spanish leader is expected to ask for affirmation that the ECB can be relied on to provide liquidity boosts for Spain’s ailing banks. Mr Draghi’s had some positive things to say about Spain. In the press conference he recognised that Spain had “carried out significant reforms in a short time” though insisted that “perseverance was needed to push through more structural reforms” especially in the banking sector. ... The online edition of Spain’s financial newspaper Expansion chose to highlight his comments on further reforms. “Draghi calls for more forceful measures: ‘If you have a problem with the banks, confront it’” said the headline. Overall the paper said there were no surprises in decisions taken during by the ECB governing council.

Tensions within the zone are mounting as we enter this week

Tensions within the zone are mounting as we enter a week in which Italy, Belgium, Spain and France plan to tap the markets for some €17 billion ($22 billion) in new loans and, says Goldman Sachs, the European economy slides into recession. Bankrupt Greece; junk-rated Portugal pleading with Angola for inbound investment; jobless Spain, facing some interest rates that have doubled in the past month; and recovering Ireland have already fallen to the bond vigilantes. Growth-free Italy is fighting a rearguard action, facing unsustainable interest rates despite the stellar reputation of its newly appointed technocrat prime minister, Mario Monti; Belgian debt, now equal to its GDP, has been downgraded, in part because of the inability of this seat of the EU to form a new government. France, consumer confidence dropping, is likely next. Some German IOUs were unsold, and prices of bunds are slipping. No euro-zone country and no euro-zone company can any longer escape the consequences of the structural flaw in the euro-zone architecture. German Chancellor Angela Merkel opposes measures that might stem the tide that is about to engulf the euro. Nor can countries outside the euro zone. Great Britain, with high deficits, mounting debt, and a deficit-reduction plan that just might not work, retains its triple-A rating because it has its own currency and the rating companies increasingly consider governance when deciding whether to downgrade.
Britain is considered governable, but that might change after Wednesday's strike of public service workers shuts down the country. The failure of the super committee to find some trivial deficit reductions means America might also slip into the ungovernable category. And the Federal Reserve Board is imposing new stress tests to determine whether leading banks can withstand a wave of sovereign- debt and bank defaults in Europe. One thing is certain: The euro cannot survive without a major change in the governance structure of the euro zone. The first prescription for what ails the zone was "austerity", but that has produced recessions and government oustings. Then came the European Financial Stability Facility, but it turns out to be too puny to halt the bond vigilantes' rampage through the euro zone, and anyhow rests in part on France's waning ability to join Germany as a guarantor by retaining its triple-A credit rating. The European Central Bank, operating within the legal limits imposed on it by thetreaties that govern the European Union, is providing some liquidity to the banks and a bit of relief on the interest-rate front for sovereign borrowers, but it cannot do much to prevent the insolvent from being forced to default. Ms. Merkel, Germany's latest Iron Chancellor, has set her face against any of the measures that might stem the tide that is about to engulf the euro. She is against allowing the ECB to become the lender of last resort, aka printer of money. She refuses to share her balance sheet with stressed countries by allowing the issuance of euro-bonds, until they reform, even though such reforms cannot be implemented in time to head off sovereign defaults that would take down many under-capitalized European banks, now desperately juggling their books to inflate their capital ratios.

The other Europe ...today's developments - At this hour ( 1:30 pmlocal time), there are people gathering in the center of Bucharest once more.

ROMANIA: More than 30 people were injured Sunday during a protest that turned violent in Romania’s capital, with demonstrators throwing stones and riot police using tear gas, medical sources said. Around a thousand Romanians had gathered in central Bucharest to voice anger at falling living standards and call on President Traian Basescu to step down. At this hour ( 1:30 PM. local time), there are people gathering in the center of Bucharest once more.

CZECH REPUBLIC: The Czech government’s restitution bill that compensates churches for property and assets confiscated during communist rule has raised political tensions and fiscal costs, and as such is credit negative, Moody’s Investors Service said Monday. The bill commits the state to transferring CZK170 billion, or 4.3% of gross domestic product, to the churches, Moody’s noted. Furthermore, if tensions result in the exit of Public Affairs (VV) from the ruling coalition, early elections would have to be called to form a new government, the credit rating firm pointed out.
SLOVAKIA: Standard & Poor’s Ratings Services lowered its long-term sovereign credit rating on the Slovak Republic to ‘A’ from ‘A+’, and affirmed the short-term ‘A-1′ rating
BULGARIA: Miners at Bulgaria’s largest coal producer, state-owned Maritza East Mines, went on strike Sunday after failing to obtain demanded wage increases, miners’ union leader Valentin Valchev said.

Sarkozy calls for a 'new economic age' where debt and public spending are reduced, claiming that 'those that lend to us no longer want to lend to us' despite today's successful bond auction. However, Moody's has downgraded its outlook on the Czech banking system to negative from stable on prospects of a "broader slowdown" in the EU. The change in outlook primarily reflects the rating agency's view that the banks' operating environment will weaken, amidst a broader EU economic slowdown. This will create renewed pressures on asset quality and impair the banks' profitability and capitalization. Sarkozy gave his version of how the eurozone should work today, calling for France to clear its debts, trim public spending and begin a "new economic age". He will meet with Angela Merkel on Monday, but before that she's set to give her own version of the speech to the Bundestag tomorrow. Stay tuned to the live blog tomorrow for coverage of that. Essentially, the pair will hash-out a joint plan to take to the EU summit on December 8 and 9 - the idea being to give the EU a new treaty to restore tough budgetary discipline on the debt-ravaged eurozone. This afternoon we heard that the IMF was "likely" to slash its global economic growth forecast in the New Year, now the United Nations has sharply cut its own economic projections, claiming that the world is at risk of entering a new recession.....The UN's report on the World Economic Situation and Prospects 2012, released today, forecasts 2.6pc growth next year in its main, relatively optimistic scenario - and just 0.5pc in its pessimistic scenario. That's significantly below its May forecast of 3.6pc. The report says: "The world economy is teetering on the brink of another major downturn" and "the risks for a double-dip recession have heightened".

Federal Reserve "coordinates" with ECB and Bank of England to allow banks cheaper access to dollar.

Everything is now starting to make sense to me at least. The Federal Reserve is trying to bail everyone out and this will produce a lot of downward pressure on the US dollar. Eventually the pressure will become too great leading to a collapse of the currency.An international reserve currency will be organised in the aftermath with an international Central Bank probably led by the IMF.This bank will 'prevent' the bank runs that are taking place at this very moment. The carbon tax scheme will then be the instituted worldwide with the proceeds going to the international bank. I may be wrong but it looks like this may happen....However : the next step in the "Hollywood script", soon the USA will own and control all of europe, and they will get us paying for their defense budget, but i said this almost a year ago, but i am simple. Another step towards the super dollar. ...IN REAL LFE : Greece will see another general strike tomorrow, with ferries and public transport disrupted, schools closed and state hospitals running with reduced staff. The cause, again, is the painful package of austerity measures that the state was forced to take on in return for bail-out cash. Just yesterday eurozone leaders approved the next €8bn payment. Ilias Iliopoulos, deputy leader of the civil servants' union AEDEDY, spoke to AP television: They are creating a situation that can no longer be tolerated, can no longer be endured. Unfortunately people are in a state of somewhere between poverty and despair. The measures are supposed to improve the country's financial situation, but the country is getting deeper into debt, unemployment is rising, and the recession - unprecedented in recent times - is worse than anywhere else in Europe. People are falling apart.

The panic engulfing Europe’s banks is alarming. Their access to wholesale funding markets has dried up, and the interbank market is increasingly stressed, as banks refuse to lend to each other. Firms are pulling deposits from peripheral countries’ banks. This backdoor run is forcing banks to sell assets and squeeze lending; the credit crunch could be deeper than the one Europe suffered after Lehman Brothers collapsed. Add the ever greater fiscal austerity being imposed across Europe and a collapse in business and consumer confidence, and there is little doubt that the euro zone will see a deep recession in 2012—with a fall in output of perhaps as much as 2%. That will lead to a vicious feedback loop in which recession widens budget deficits, swells government debts and feeds popular opposition to austerity and reform. Fear of the consequences will then drive investors even faster towards the exits. Past financial crises show that this downward spiral can be arrested only by bold policies to regain market confidence. But Europe’s policymakers seem unable or unwilling to be bold enough. The much-ballyhooed leveraging of the euro-zone rescue fund agreed on in October is going nowhere. Euro-zone leaders have become adept at talking up grand long-term plans to safeguard their currency—more intrusive fiscal supervision, new treaties to advance political integration. But they offer almost no ideas for containing today’s conflagration.

It's never going to happen....wishful thinking

Major British financial institutions, like the Royal Bank of Scotland, are drawing up contingency plans in case the unthinkable veers toward reality, bank supervisors said Thursday. United States regulators have been pushing American banks like Citigroup and others to reduce their exposure to the euro zone. In Asia, authorities in Hong Kong have stepped up their monitoring of the international exposure of foreign and local banks in light of the European crisis. For the growing chorus of observers who fear that a breakup of the euro zone might be at hand, Chancellor Angela Merkel of Germany has a pointed rebuke: It’s never going to happen. But some banks are no longer so sure, especially as the sovereign debt crisis threatened to ensnare Germany itself this week, when investors began to question the nation’s stature as Europe’s main pillar of stability. On Friday, Standard & Poor’s downgraded Belgium’s credit standing to AA from AA+, saying it might not be able to cut its towering debt load any time soon. Ratings agencies this week cautioned that France could lose its AAA rating if the crisis grew. On Thursday, agencies lowered the ratings of Portugal and Hungary to junk. While European leaders still say there is no need to draw up a Plan B, some of the world’s biggest banks, and their supervisors, are doing just that. “We cannot be, and are not, complacent on this front,” Andrew Bailey, a regulator at Britain’s Financial Services Authority, said this week. “We must not ignore the prospect of a disorderly departure of some countries from the euro zone,” he said. Banks including Merrill Lynch, Barclays Capital and Nomura issued a cascade of reports this week examining the likelihood of a breakup of the euro zone. “The euro zone financial crisis has entered a far more dangerous phase,” analysts at Nomura wrote on Friday. Unless the European Central Bank steps in to help where politicians have failed, “a euro breakup now appears probable rather than possible,” the bank said.

Contingency planing - throughout Europe and beyond

The remaining international confidence in the euro evaporated and made even German bonds to lose their "risk free" status. The crisis is no longer confined to the "sinners of the south". Suddenly, no-one wants to hold euro denominated assets of any variety, and that includes what had previously been thought the eurozone safe haven of German bonds. "Investors have gone on strike". The American Investors are getting their money out as fast as they decently can and British banks have stopped lending to all but their safest euro zone counterparts. Even those have been denied access to dollar funding. The UK hardly has anything to boast of... it's got its own legion of problems, many of them not so dissimilar to those of the euro zone periphery. The defining moment was the fiasco over Wednesday's bond auction, reinforced on Thursday by the spectacle of German sovereign bond yields rising above those of the UK. If you are tempted to think this is another vote of confidence by international investors in the UK, don't. It's actually got virtually nothing to do with us. Nor in truth does it have much to do with the idea that Germany will eventually get saddled with liability for periphery nation debts, thereby undermining its own creditworthiness. No, what this is about is the markets starting to bet on what was previously a minority view - a complete collapse, or break-up, of the euro. Up until the past few days, it has remained just about possible to go along with the idea that ultimately Germany would bow to pressure and do whatever might be required to save the single currency. The prevailing view was that the German Chancellor didn't really mean what she was saying, or was only saying it to placate German voters. When she finally came to peer over the precipice, she would retreat from her hard line position and compromise. Self interest alone would force Germany to act. There comes a point in "every crisis" when the consensus suddenly shatters. That's what has just occurred, and with good reason. In recent days, it has become plain as lite that the "lady's not for turning".

ECB policymakers continue to reject international calls to intervene decisively as Europe's lender of last resort, stressing it is up to governments to resolve the debt crisis through austerity measures and reforms. The bond market contagion continues to spread across Europe. Italian 10-year bond yields have risen above 7pc, unaffordable in the long term, while yields on bonds issued by France, the Netherlands and Austria - which along with Germany form the core of the euro zone - have also climbed. With its prized 'AAA' credit rating under threat from soaring borrowing costs, France appeared to plead for stronger ECB action. German Chancellor Angela Merkel made clear Berlin would resist pressure for the central bank to take a bigger role in resolving the debt crisis, saying European Union rules prohibited such action. I believe that the euro zone having so many diverse economies and no fiscal transfers that the ECB needs to act as a lender of last resort and start printing money like any other normal central bank would do - if it does not, then the euro zone could well collapse... and it will ! On the reverse : France is truly pathetic. No balanced budget for decades; Chirac did nothing to restructure France, which has the highest costs for govt. employees in the EU. They surely need a reality check; this pathetic begging for the ECB to print money is ridiculous. They have only now, started a programe of "austerity", but we're not allowed to call it that. I fear far worse is to come when the socialists win the Presidency; than, we may well see a real collapse.

ITALY - Mr Monti's appointment seemed a done deal earlier in the week, but two other candidates are now being openly discussed – Angelino Alfano, Mr Berlusconi's former justice minister, and Lamberto Dini, a former Bank of Italy official who headed a similar technocrat government during an earlier phase of political paralysis in the 1990s. Italy would be "playing with fire" if it proved unable to form a new government under Mr Monti and give him a clear mandate to enact the reforms, Corriere della Sera said in a front page editorial. Business leaders and most of the country's big unions launched a joint appeal for Mr Monti to be made the new prime minister in order to restore confidence in Italy's ability to cut its debt and calm the euro zone crisis. "By Monday, Italy must have a new emergency government, with a respected leader and the broadest possible consensus in parliament," their statement said. There are serious concerns in Italy that even if a Monti government could be formed, it could be brought down within months by political infighting and an inability to push through the deeply unpopular reforms, which have been demanded by the country's European leaders and the International Monetary Fund. "On the eve of Berlusconi's resignation, there is still great confusion," newspaper Corriere della Sera warned.

Europe is in trouble because you, THE UNION MEMBERS ( amusing thought - union- what union?) borrowed too much money. If your politicians had not spent so much of your money, and borrow more to boot, to buy the votes of various constituencies, you would not have these problems now. You continue to blame everyone but yourselves. The EU will collapse because European society is a welfare state that could never be sustained. There is no way to fix it without pain (i.e., spending cuts). The reason every plan your "leaders" dream up fails is because they try to fix debt by more borrowing. You're finished. Your society is a failure. I hope the US does not follow you, but our current leadership seem bent on doing just that. You're spoiled just like Americans are spoiled. Don't take my word for it. Rather, listen to the head of the Chinese Sovereign Wealth Fund, to whom your leader went begging last week? “I think if you look at the troubles which happened in European countries, this is purely because of the accumulated troubles of their worn out welfare societies,” Jin Liqun said in an interview with Al Jazeera television. “I think the labour laws are outdated – the labour laws induce sloth, indolence rather than hard working. The incentive system is totally out of whack.”

I'm quite impressed with Mr. Pappandreou's performance. As I thought earlier, this pantomime seems to be designed entirely to allow him a somewhat dignified exit.
He 'negotiated' (i.e., 'had imposed on him') the EU debt relief package and then, when the conservatives railed against him for the terms of that package, floated the idea of a referendum (although I doubt he ever intended there to be one). That caused sufficient panic among his opponents that he proposed a 'government of national unity' (i.e. 'a government not led by him') to do the dirty work of actually implementing the requirements of the EU package. Now he can place the leader of the conservatives squarely in the gunsights for the duration of the worst of the cuts that must hit Greece, walk away and say, "But I wanted the people to choose!"
They shouldn't clean out his office as he or his successor will be back within two years.

Greek Prime Minister George Papandreou has won unanimous support from cabinet for his controversial plan to hold a referendum on the EU bailout deal. Mr Papandreou told a late-night cabinet meeting that the referendum will be "a clear mandate and a clear message in and outside Greece on our European course and participation in the euro." "No one will be able to doubt Greece's course within the euro," he said, adding that market turmoil triggered by his announcement of the referendum late on Monday would be short-lived. After the meeting, a Greek government spokesman said cabinet had unanimously to the referendum and that it would take place "as soon as possible". "The cabinet expressed its support," said government spokesman Elias Mossialos. "The referendum will take place as soon as possible, right after the basics of the bailout deal are formulated." The euro and global stocks were pummelled on financial markets on Tuesday after Mr Papandreou's move threw into question the survival of crucial efforts to contain the euro zone's sovereign debt crisis. Asian stocks extended the wave of selling on Wednesday. Meanwhile, The French president Nicolas Sarkozy and German chancellor Angela Merkel will hold emergency talks on today in a desperate attempt to hold the eurozone together and formulate a response to the Greek prime minister's plan for a referendum on the austerity measures imposed by his European partners. George Papandreou's socialist government is on the brink of collapse after his referendum plan sparked an angry reaction within his own party and plunged Europe back into turmoil, just days after a complex rescue deal had been agreed – requiring Greece to embark on tough cost-cutting measures.

The ECB has already done quite a bit of bond buying, which it has disingenuously dressed up as a way of helping the "monetary transmission system". The sophistry of this explanation is ridiculous. No, what the ECB has been doing is trying to drive bond yields in the distressed single currency nations down to more tolerable levels.Even so, the numbers have been very low against what the Federal Reserve has been doing in the US, and the Bank of England in the UK. As long as Germans believe that bond buying by the central bank is essentially monetisation of public debt – the sort of stuff that led to the Weimar hyperinflation of legend – it will be blocked from meaningful action. Mr Draghi's challenge is therefore to persuade Berlin that bond purchases are for a different purpose – demand management. This is essentially the justification that underpins QE in Britain and the US. In both cases, the intention is eventually to sell the accumulated bond holdings back to markets, or to run down the positions by allowing the bonds to mature. To better support this justification, ECB bond purchases would have to be much more widely spread than at present. It would have to include German bunds in proportion to the size of the German economy alongside Italian, Spanish and Portugese debt. But as I say, Mr Draghi faces an uphill struggle. Germans would prefer to suffer, or even see the euro collapse completely, than tolerate such an unconventional approach

Responding to the riots that followed last week's proposal as well as dissent from within his own Socialist party, Prime Minister George Papandreou said: "The command of the Greek people will bind us. Do they want to adopt the new deal, or reject it? If the Greek people do not want it, it will not be adopted." Staging a referendum threatens to throw the euro zone further into crisis as the majority of Greeks object to the bail-out, according to a survey published last week. If Greece were to reject the plan, which requires deep spending cuts, it would risk a full-scale default and possible ejection from the euro. The country could even run out of money to pay civil servants or state pensions if the troika decided to pull the plug. European leaders and the IMF have struck a deal that would see banks take a 50pc write down on Greek loans, cutting the country's debt by up to €100bn, alongside a €130bn international rescue effort on top of the existing €110bn package. No dates have been set for the referendum, which would include a confidence vote in the government. Yields on 10-year bonds jumped to 6.18pc on Monday, while spreads over German Bonds reached 410 basis points, nearing the critical level where LCH Clearnet raises margin requirements. This, in turn, triggers further selling. However, The Greek Constitution permits referenda EXCEPT for questions involving potential revenue measures including taxation. On that basis any referendum in Greece on the aid package and accompanying revenue measures is unconstitutional.

Mario Draghi has little latitude for monetary stimulus. Germany has imposed a de facto veto on large-scale purchases of Italian and Spanish bonds, viewed by orthodox monetarists as a slippery slope towards debt monetization. Intesa Sanpaolo Giovanni Bazoli said the spreads are un stainable "not just in the medium run, but in the short run as well". He warned of a credit crunch in Italy as banks struggle to meet higher capital ratios set by EU leaders. The renewed jitters came as the OECD club of rich states slashed its euro zone growth forecast for next year from 2pc to just 0.3pc, implying an outright recession over the winter. The body called on the ECB to cut interest rates and deploy its full lending power to head off debt contagion to Italy and Spain. The OECD said the world risks a fresh crisis of equal magnitude to the Great Recession if authorities fail to act in time, with GDP contractions of up to 5pc in some big economies by early 2013. The ECB's new president The Bundestag voted last week to upgrade the EU's bail-out fund (EFSF) to around €1.2 trillion but only on condition that the ECB steps back from its support role. This pits Germany against much of the world. The US Treasury, the International Monetary Fund, and most leading economists fear the fund will fail without a central bank prop.

STATEMENT OF EU HEADS OF STATE OR GOVERNMENT : At today's meeting, in line with paragraph 7 of the European Council conclusions of 23 October concerning relations between the EU and the Euro area, the members of the European Council were informed by President Van Rompuy about the state of preparations of the Euro Summit that will take place later in the day. They discussed the situation and underlined their common resolve to do their utmost to overcome the crisis and to help face in a spirit of solidarity the challenges confronting the European Union and the Euro area. They welcomed the consensus on measures to restore confidence in the banking sector reached by the Council (ECOFIN) on 22 October. On this basis, they agreed the text annexed to this statement subject to agreement on the measures indicated in this text forming part of a broader package, including the decisions to be taken by today's meeting of the Euro Summit. The Council (ECOFIN) will finalise the work and adopt the necessary follow up measures.

Remarks by President of the European Council Herman Van Rompuy after the meeting of EU Heads of State or Government: At today's meeting, I informed the members of the European Council about the state of preparations of the Euro Summit that will take place later in the day. We discussed the situation and all leaders underlined their common resolve to do their utmost to overcome the crisis and to help face in a spirit of solidarity the challenges confronting the European Union and the Euro area. The members of the European Council welcomed the consensus on measures to restore confidence in the banking sector reached by the Council (ECOFIN) on 22 October. The banking measures form part of a broader package, alongside the decisions to be taken by today's meeting of the Euro Summit, and are subject to its full approval. The Council (ECOFIN) will finalize the work and adopt the necessary follow up measures. The consensus concerns both the banks' short-term and longer-term needs. The overarching goal of the exercise is to foster confidence in the European banking sector. Improved access of the banks' medium- and long-term funding is essential to avoid a credit crunch and to safeguard the flow of credit to the real economy. States will provide guarantees enabling banks to raise term funds. We decided to rely on a truly coordinated approach at EU level regarding the conditions and criteria. Short term overcapitalization is needed in the current exceptional circumstances to create a temporary buffer allowing the banking system to withstand shocks in a reliable manner. Agreement has been reached that banks should be required, by 30 June 2012, to have 9 %of the highest quality capital. This figure should take into account a marking down for sovereign bond holdings against current market prices (as of 30 September 2011). Banks should raise capital in the first place from private sources, and only if that is not possible, seek support from national governments. If the latter support is not available without creating systemic risks for the Euro zone, the EFSF should provide the loans for overcapitalization. Any form of public support, whether at a national or EU-level, will have to comply to the rules of the state aid crisis framework. The Commission has indicated it will be applied with the necessary proportionality in view of the systemic character of the crisis. With these measures, we restore confidence and put Europe's banking sector on a sound footing.

Silvio Berlusconi has agreed to resign by January

Italy is very much to the forefront again - the government is hanging by a thread. Italian newspaper Repubblica is reporting that Silvio Berlusconi has agreed to resign by January in exchange for agreement from his coaltion partners on reform of pensions and government bureaucracy.

Italy, which has €1.9 trillion (£1.65 trillion) of debt, will try to sell €10.5bn of government bonds today, even as it races to come up with a credible debt-reduction plan in time for today's summit in Brussels. Obviously if Italy is without a leader, or can't get agreement on debt reduction, it will make getting a final agreement at this afternoon's meeting all the harder - it is the eurozone's third-largest economy after all...

The International Monetary Fund is considering taking part in the bail-out fund via a special investment vehicle (SPIV), Reuters reported. To increase the firepower of the €440bn EFSF without actually putting more money into it, the SPIV (try not to laugh at the name) will be able to issue debt and use the money raised to buy the bonds of indebted nations in the secondary markets, or make loans to governments. The SPIV would be able to raise money from private investors and sovereign wealth funds, and the IMF could also contribute. Of course, when the IMF is involved, it means stakeholders countries taxpayers are on the hook because of the country's contribution to the fund.

NEW YORK -(Dow Jones)- The euro rose Wednesday in uneven trading, retreating below $1.38 as cautious optimism over a European bailout deal gave way to mounting skepticism that a final solution will solve the euro zone's debt crisis. In advance of a pivotal weekend summit, France and Germany are locked in intensive negotiations on whether investors in Greece's nearly $500 billion stack of distressed debt will be asked to take a significantly larger writedown on their holdings. European leaders are also mulling a range of options on how to buttress the European Financial Stability Fund. On Tuesday, the euro surged on a report from The Guardian that European policymakers may more than quadruple the EFSF from its current EUR440 billion. While numerous officials acknowledge a deal is in the works, they have vigorously diminished the prospect of a final solution exceeding EUR1 trillion. According to many analysts, that sum would fall short of the necessary resources to simultaneously shore up Greece and protect Italy and Spain, both of which are seen as increasingly vulnerable to contagion risks in the event of a Greek default or hard restructuring. "You see the outlines of a solution, but there are a tremendous number of loose threads hanging there," said Steven Englander, head of G10 strategy at Citigroup in New York. European leaders are "smelling the coffee but at some point the market will pull on them and everything will unravel," he said. In early trading, the euro flirted with levels just below $1.39 but pared those gains as traders mulled whether Europe's efforts--after so many false dawns--would provide the clarity the market desperately needed. The single currency was up 0.23%, trading near $1.3785. The dollar bought Y76.81, virtually unchanged from Tuesday's close, and the euro rose 0.20% to trade around Y105.94.

Lot's of "smoke" again ...

Jose Manuel Barroso has said he will this week propose “individual criminal responsibility for financial players to be recognised in European law”. The plans for an EU-wide directive would focus on curbing high frequency trading. “We have seen abusive behaviour, and some of this caused the current crisis. We are going to clamp down on these practices,” Mr Barroso told Le Parisien. “Those who violate the rules will face criminal penalties. This will be a first in European legislation and a strong signal.” The Commission will invoke new powers under Article 83 of the Lisbon Treaty allowing the EU to impose minimum rules and sanctions on member states when needed “to ensure the effective implementation” of EU policies. The clause allows the EU to broaden the European Arrest Warrant beyond limited areas such as terrorism, drug-trafficking, and money-laundering to softer crimes if they have a “cross-border dimension”. G20 finance ministers praised Europe’s efforts to “maximise the impact” of the EU’s €440bn bail-out fund (EFSF) and ensure that the region’s banks are “adequately capitalised”, but there were heated exchanges behind closed door as the Anglo-Saxon states, and India rebuked Europe’s leaders for failing to grasp the nettle and mobilize the full lending power of the European Central Bank. “They clearly have more work to do on strategy and details,” said US Treasury Secretary Tim Geithner. “In financial crises, it is more risky to act gradually and incrementally than to act with bold force”. Diplomats say Mr Geithner’s plan to use the ECB as a guarantor of eurozone sovereign bonds was dismissed out of hand, while the EU failed to offer clear assurances that bank recapitalisation would be carried out with sufficient speed and scale to halt an incipent run on the system. Olli Rehn, the EU’s economics commissioner, said Brussels will announce a “very serious plan” over come days to beef up banks and strengthen the firewall against contagion. German foreign minister Guido Westerwelle politely told the US to mind its own business. “I cannot understand some of the comments of our American friends. You can’t solve a debt crisis with more debt,” he told Bild Zeitung. Germany's finance minister says private holders of Greek government bonds must accept bigger losses to achieve "a durable and sustainable solution" for Europe's debt crisis. Wolfgang Schaeuble told German public broadcaster ARD on Sunday that an agreement struck in July when banks and other investors agreed to renounce on 20 percent of their Greek debt must be renegotiated. He says the private sector's contribution to a reduction of Greece's debt burden "will probably have to be higher." The Institute of International Finance, a global bank lobbying group, says its managing director Charles Dallara is in talks with officials from the 17-nation eurozone about the July agreement. Spokesman Frank Vogl declined to elaborate, but the group's leadership has so far rejected accepting bigger losses.

The European Central Bank (ECB) has done all it could to halt the spread of the European debt crisis and protect the financial system, and now it's up to governments to do their part, outgoing ECB President Jean-Claude Trichet says. "I think that the ECB has done all it could to be up to its responsibilities in exceptional circumstances…The ultimate backstop is, of course, the governments. To do anything that would let governments off their responsibilities would be a recipe for failure,” Trichet tells the Financial Times. Further economic integration among eurozone countries will be needed to end the current crisis and prevent new ones, says Trichet, whose eight-year terms ends later this month. "I think that we are experiencing history in the making. My sense is that no country, no individual, no leader will take the responsibility of going backwards. That’s the reason why I am confident." Europe remains at risk of falling back into recession in wake of the debt crisis, caused by fears that Greece may default and take the continent's financial system down with it. The ECB has cut interest rates and held them at 1.5 percent and some European monetary authorities say there should be no rush to raise them, as inflation remains at bay. "I expect inflation to drop below 2 percent next year," says Jozef Makuch, Slovakia's central bank chief, according to Reuters. "Negative gross domestic product can't be ruled out if downside risks materialize."

Geting closer to the Ribbentrop - Molotov Pact implemetation ..!!!

PARIS—France and Germany were moving closer on a comprehensive package to stabilize the euro zone that would bolster the firepower of the bloc's rescue fund and strengthen the region's banks, the countries' finance ministers said Friday, though officials cautioned they were still working on many of the details. French and German finance ministers Friday said they have made progress on delivering a comprehensive package to stabilize the euro zone. Meanwhile the cost of the collateral Greece is expected to provide its creditors has zoomed up. Charles Forelle reports live from Paris. Finance ministers and central-bank chiefs from the Group of 20 leading nations were meeting here Friday and Saturday, with the threat the euro zone's crisis poses to the rest of the world economy and financial system dominating discussions. France's President Nicolas Sarkozy gestures at Germany's Finance Minister Wolfgang Sch??uble after a meeting at the Elys??e Palace in Paris. Meeting ahead of that gathering, French Finance Minister François Baroin and his German counterpart Wolfgang Schäuble said the two governments have developed specific agreements to present to other European countries at a summit in Brussels on Oct. 23. The package—first promised by German Chancellor Angela Merkel and French President Nicolas Sarkozy last Sunday—includes maximizing the force of the euro zone's bailout fund and finding a solution for Greece's debts. "We also made progress on the shared plan to recapitalize banks," Mr. Baroin told reporters after a meeting with Messrs. Schäuble and Sarkozy. As Portugal announces further austerity cuts and Spain experiences another ratings cut, G-20 finance ministers talk to the IMF about a possible role in the euro-zone crisis. France and Germany hold the key to resolving the biggest question hanging over global financial markets: how to boost the European Financial Stability Facility's firepower without requiring nations to contribute further funding or guarantees. According to a European Union official familiar with the situation, Germany and France are weighing two models but leaning towards using the fund to insure bonds from euro-zone countries.