In Spain, another of the 17-nation monetary union's debt-laden members, regional leaders acted out against similar planned spending cuts with protests and boycotts, although central government officials stood by their pledge to live up to the austerity measures demanded in exchange for a banking rescue.
And in another symbolic plea to more solvent Eurozone colleagues for help, Italian Prime Minister Mario Monti took his case to prosperous and creditworthy Finland for concerted action to reduce borrowing costs for euro users being strangled by soaring interest rates.
The campaign to shore up the common currency served as silent pressure on the European Central Bank to do something at its Thursday board meeting to boost investors' confidence in the government bonds Italy and Spain need to float to pay their huge debts and to assure those already holding Greek paper that Athens won't default.
It took three contentious leadership meetings this past week for Greek Prime Minister Antonis Samaras to persuade his coalition partners to agree to the 2013 and 2014 budget cuts, which come on top of already drastic reductions in public services spending. After Wednesday's last-ditch negotiation, Socialist Party leader Evangelos Venizelos said he agreed to the belt-tightening because the newly assembled government was at risk of collapsing if agreement wasn't reached. Athens needed to present its creditors with a plan for further austerity measures to get the next tranche of bailout funds due this month to cover pensions, public sector wages and interest on its loans.
Expectations that the ECB would take some action to ease interest rates for Eurozone members were spurred last week when the bank's president, Mario Draghi, vowed to do "whatever it takes" to restore investor confidence in the euro and to prevent damaging "speculation" in the bond market.
But the Eurozone's more financially stable members have warned the ECB not to overstep its authority. German Bundesbank President Jens Weidmann reminded central bank officials Wednesday that their main job is to fight inflation, not manage national budgets. German, Finnish, Austrian and other leaders in countries with good credit ratings also fear their borrowing costs will rise if the ECB intervenes to lower government bond yields for the bigger debtors.
Draghi's assurance that the ECB would act to protect the euro was matched by similarly supportive comments by German Chancellor Angela Merkel and French President Francois Hollande. Those reassuring words may have led Spanish and Italian officials to believe the central bank would find some way at its governing council meeting to get around European Union treaty restrictions on how the bank can use the region's collective funds. The ECB is prohibited from lending directly to governments, but some officers were reportedly advocating indirect loans for member states through a Eurozone bailout fund.
Economists point out there is little the ECB can do to resolve the Eurozone's long-term problems. While the central bank can ease loan conditions and refinance rates, the common currency club needs to push through legislation and treaty revisions that will create a centralized banking and regulation network to better control and coordinate member finances. That could take years, time the struggling governments don't have as they are forced to borrow at unsustainable rates to keep up with their debt servicing costs.
German Vice Chancellor Philipp Roesler reiterated after a Cabinet meeting Wednesday in Berlin that his government remains staunchly opposed to the ECB granting a banking license to the bailout fund, known as the European Stability Mechanism, which would allow it to tap ECB funds at low interest.
"If you take away the interest rate pressure on individual states, you also take away the pressure for them to reform," Roesler told journalists.
That is a sentiment held among leaders of the more stable Eurozone countries, leading some analysts to say that the ECB was unlikely to take any bold action at its Thursday meeting.
--Carol J. Williams in Los Angeles
Photo: The European Central Bank governing council is to meet Thursday at its headquarters in Frankfurt, Germany, to consider proposals for easing borrowing costs for the Eurozone's most indebted member states. Credit: Hannelore Foerster/Bloomberg