Eurozone closer to cutting Greece's huge debts (AP)

BRUSSELS – Finance ministers from the 17 euro countries agreed Friday to pay Greece its next batch of bailout loans, avoiding a potentially disastrous default, and moved closer to reducing the country's massive debt burden.

But Greece's debts are only one piece of Europe's economic puzzle. The ministers meeting in Brussels were also struggling with two more complicated — and arguably more important — issues: boosting the firepower of the eurozone's euro440 billion ($607 billion) bailout fund to keep the crisis from spreading and forcing weak banks to increase their capital buffers as a defense against market turmoil.

A European Union official said ministers had made progress on strengthening the banks, and that a plan should be ready for a summit of EU leaders Sunday. He spoke on condition of anonymity to discuss confidential negotiations.

However, more work remained to be done on Greece and the bailout fund, the European Financial Stability Facility. Decisions on those two fronts were not expected until a second summit on Wednesday.

Greek Finance Minister Evangelos Venizelos welcomed the news that Athens would get the next euro8 billion ($11 billion) installment, calling it a "positive step." A day earlier, Greek lawmakers had approved new, deeply contentious austerity measures to get the money.

The loans, which still need the approval of the International Monetary Fund, should be delivered during the first half of November. The money will keep Greece afloat for a little longer, but most economists agree that the country also needs a substantial cut to its debt load.

The findings of a report from Greece's international debt inspectors piled more pressure on European finance chiefs to find a solution for the country, whose troubles kicked off the crisis almost two years ago.

According to the report, Athens won't be able to raise money on financial markets until 2021 unless it is allowed to write off more of its debt load. If that doesn't happen, the country would need hundreds of billions of euros in new bailout loans.

A person familiar with the report said a tentative deal reached with banks in July to give Greece easier terms on its bonds would still leave it with a huge debt load of 152 percent of economic output in 2020. The person spoke on condition of anonymity because the report is confidential.

Germany is pushing for a revision of the July deal to have Greece's private creditors take bigger losses of 50 percent to 60 percent and reduce its debt to some 120 percent of GDP by 2020.

The EU official said ministers had moved closer to Germany's position on steeper cuts to Greece's debt, but some financially weaker countries were still worried that could destabilize their markets and push their borrowing rates higher. "I wouldn't say there's a consensus but something close to that," he said.

The eurozone needs to find a way to ensure that larger countries like Spain and Italy don't get engulfed in the debt crisis, as they would be too expensive to bail out.

Increasing the firepower of the bailout fund, the European Financial Stability Facility, is meant to offer that protection, but Germany and France still disagree over how to do that.

Ministers failed to make much progress on that front Friday night and broke up the meeting shortly after starting discussions on the EFSF.

A German official, speaking on condition of anonymity, said that a combination of two options had crystallized as the most likely solution to giving the fund more leverage.

The first would involve the bailout fund acting as an insurer for bond issues from wobbly countries like Italy. That would essentially compensate investors against a first round of potential losses and keep governments' borrowing costs in check.

In addition, the International Monetary Fund — which has already provided about a third of the bailout cash for Greece, Ireland and Portugal — would supply other stragglers with precautionary credit lines to make sure they have ready access to cheap money.

Last weekend, at a meeting in Paris, the finance chiefs from the Group of 20 leading economies opened the door for a larger role by the IMF, but only if the eurozone first does its part.

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Melissa Eddy in Berlin and Elena Becatoros in Brussels contributed to this story.

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Eurozone crisis efforts in disarray amid divisions (AP)

BRUSSELS – Europe's efforts to solve its escalating debt crisis plunged into disarray Thursday, after Germany and France could not bridge their differences in time for a summit Sunday, forcing them to call a second meeting.

Sunday's summit was supposed to deliver a comprehensive plan to finally get a grip on the currency union's debt troubles by detailing new financing for debt-ridden Greece, a plan to make Europe's banks fit to sustain worsening market turbulence and a scheme to make the eurozone bailout fund more powerful.

The offices of French President Nicolas Sarkozy and German Chancellor Angela Merkel announced that they needed more time after it became clear that the currency union's two biggest countries could not agree on the main points of the plan.

Both governments said that all elements of the eurozone's crisis strategy would be discussed on Sunday "so it can be definitively adopted by the Heads of State and Government at a second meeting Wednesday at the latest."

It also said that the two leaders would meet Saturday evening ahead of the summit in Brussels in the hope of making progress.

"The chancellor is confident that in this way good, coordinated measures for the stability of the eurozone can be achieved," Merkel's spokesman Steffan Seibert told journalists in Berlin.

The announcement of a second summit is likely to increase concern over the eurozone's ability to stick together and stabilize the common currency. Sunday's summit had already been delayed from earlier in the week to give the leaders more time to agree on the key issues.

"The parochialism and procrastination that got us into this mess continues," said Sony Kapoor, managing director of economic think tank Re-Define. "Unless EU leaders pull a rabbit out of their hat now, this will worsen the already deep politico-economic crisis that Europe is facing."

European officials said ahead of the announcement that the eurozone remained deeply divided on important parts of its strategy on debt-ridden Greece, banks and its bailout fund.

Germany and several other rich countries have been pushing for banks and other private investors take steeper losses on their Greek bondholdings, before the eurozone can sign off on a second multibillion euro rescue package for the struggling country.

France and the European Central Bank have so far opposed forcing banks to write off more Greek debt, fearing that would destabilize the banking sector and worsen market turmoil.

But Greece's international debt inspectors warned earlier in the day that even under a rescue package tentatively agreed in July the country's debts were not sustainable.

In their statements Thurday, Merkel and Sarkozy said that — based on the inspectors' report — Greece should immediately start negotiations with the private sector to reach a deal "that would improve this debt sustainability."

The eurozone is also divided on how to give its bailout fund more firing power, with the French wanting the ECB to help out, which Germany opposes.

A third point of contention is how to fund expensive capital injections into weak banks that might take losses on Greek debt and have already taken a hit from falling prices of other government bonds. France and several other countries are worried that bailing out their banks could hurt their credit rating and want the bailout fund to support lenders directly, rather than lending first to governments.

Ahead of the announcement, one European official, who was speaking on condition of anonymity, suggested that the need for more time may also have been caused by disagreement between Merkel's government and the German parliament, which felt that decisions affecting taxpayer money were being taken over its head.

Seibert appeared to support that assessment, saying further changes to Europe's bailout fund would require the agreement of the Bundestag, the German parliament.

"A two-step summit allows for this to take place," Seibert said.

Merkel's address to parliament scheduled for Friday was canceled, and Seibert said it would take place next week.

Governments in rich and poor countries are finding it increasingly difficult to get their parliaments to support the common rescue efforts.

Greek lawmakers late Thursday barely passed a deeply resented austerity bill needed to get the next batch of rescue money and avoid a disastrous default next month.

But the vote further diminished the ruling Socialists' grip on parliament and triggered violent protests on the streets of Athens, leaving one person dead and dozens injured.

Tear gas choked the air in Athens' central Syntagma Square as riot police tried to separate more than 50,000 peaceful protesters from smaller groups determined to wreak havoc with firebombs and stones. The scene degenerated into running battles between groups of protesters beating each other and between helmeted, heavily armed police and masked rioters.

One central Athens hospital said it had treated 74 people injured in the clashes. Some of the injured were covered in blood from head wounds.

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Juergen Baetz and Melissa Eddy in Berlin, David McHugh in Frankfurt, Germany, and Nicholas Paphitis in Athens contributed to this report.

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TSX drops as euro-zone jitters undermine jobs data (Reuters)

TORONTO (Reuters) – Toronto's main stock index ended sharply lower on Friday as surprisingly strong North American jobs data was overshadowed by downgrades of Spain and Italy's credit ratings.

The index's resource-heavy materials sector dropped a hefty 3 percent, energy shares slid 2 percent, and financials were 1.1 percent lower. Among the most heavily weighted decliners, fertilizer producer Potash Corp dived 4.1 percent, oil company Canadian Natural Resources fell 4 percent, and miner Barrick Gold was down 2.3 percent.

"It's a bit of weakness after a pretty strong move in the past few days," said Don Vialoux, technical analyst at JovInvestment Management.

He said the TSX marked an important low earlier in the week, followed by a two-day rally, which could point to a seasonal recovery in equity markets starting earlier this year.

The Toronto Stock Exchange's S&P/TSX composite index ended down 191.71 points, or 1.6 percent, at 11,588.36. Nine of its 10 sectors were lower, with telecoms rising 0.1 percent. The index was down 0.3 percent on the week.

Early in the session, the index hit its highest level in nearly two weeks as data showed U.S. employers hired more workers than expected in September and job gains for the previous two months were revised higher, easing recession fears.

Canada created six times as many jobs than forecast in September, once again outshining the United States.

"It's been a pretty profitable week and somewhere along the way we're going to give back a little bit," said Fred Ketchen, director of equity trading at ScotiaMcLeod.

The risk trade was not helped by the debt downgrades of euro zone members Spain and Italy by Fitch, which came before a European summit on Sunday that is aimed at shoring up the financial sector.

Analysts said that overall market conditions, including the ongoing debt crisis in Greece, would likely keep Canadian stocks in check over the coming weeks. Investors will also closely watch a new round of U.S. quarterly earnings reports, which begins next week.

Earnings expectations have already been lowered, so if stocks respond on the upside, "it will be a clear indicator that we're entering a period of seasonal strength," Vialoux said.

(Editing by Peter Galloway)

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