Dutch PM under fire over euro zone bailout (Reuters)

AMSTERDAM (Reuters) – Dutch opposition parties took aim at Prime Minister Mark Rutte on Saturday, demanding the minority coalition government secure a definitive and sustainable solution to Europe's debt crisis or risk a loss of parliamentary support.

The minority coalition government of Liberals and Christian Democrats needs the support of the pro-European opposition for any measures to solve the debt crisis because its main ally, the eurosceptic Freedom Party, is firmly opposed to bailouts.

"The package that comes from the summit must be sufficiently robust to actually lead us out of the crisis and we will ultimately judge the results from the summit on that basis," said Job Cohen, leader of the largest opposition party PvdA.

Euro zone leaders will meet on Sunday and Wednesday in a bid to resolve the debt crisis.

Under pressure from the PvdA, Democrat D66 and Greens party, the two government parties agreed to back motions calling on Rutte to push for sustainable reform in Europe instead of more austerity measures and a division of retail and investment banks to stop them "gambling" with consumer savings.

"This minority cabinet cannot simply take our support for granted," Greens leader Jolande Sap warned.

Rutte earlier told parliament that negotiations in Brussels were already difficult and he was not in favor of complicating the talks now with the opposition parties' proposals.

Euro zone countries are working on a plan that involves leveraging the euro zone bailout fund, recapitalising European banks and putting together a second financing package for Greece that entails deeper losses for private investors.

German Chancellor Angela Merkel said she expected a breakthrough in efforts this week.

A succession of opinion polls in the Netherlands has shown that public backing for euro zone bailouts is wearing thin, however, with a Maurice de Hond poll indicating on Friday that 72 percent of Dutch voters believe that European leaders no longer know what to do.

BAILOUT FUND

Rutte said the Netherlands would support the International Monetary Fund (IMF) taking on a greater financial role in the euro zone bailout, but refused to be drawn on other options being discussed in Brussels, sparking irritation from parliamentarians.

"The Netherlands is in favor of a bigger role for the IMF, both in expertise ... but also financially," Rutte said.

"The discussion within the IMF and G20 on giving the IMF greater financial power is very welcome."

He said that Brazil, Russia, India and China had reacted positively to an IMF agreement to evaluate the idea of giving the IMF greater financial power and the Netherlands was urging Europe to take a positive stance on that.

The fiscally conservative Netherlands has consistently said that euro zone members must stick to the budget rules and has proposed that tough sanctions be imposed on budget sinners.

Roland Plasterk, Labour's finance spokesman, said Europe's leaders had made an "enormous mess" of things and the European Central Bank should gain a greater role in the bailout fund.

Under questioning from Plasterk, the prime minister said the government had become more amenable to the idea of a tax on financial transactions, having earlier opposed the measure.

Rutte said he had recently discussed the idea with Germany's Merkel and French President Nicolas Sarkozy and the proposal would be discussed at the G20.

"The cabinet is in favor of this tax, but we are not in favor if it is introduced by just a number of countries because the effect could be enormous," Rutte said.

Rutte said the tax could have "great consequences" on the competitiveness of Dutch banks if only a couple of countries implemented it.

(Reporting By Aaron Gray-Block)

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Big banks under pressure in Europe crisis (AP)

BRUSSELS – Big banks found themselves under pressure in Europe's debt crisis Saturday, with finance chiefs pushing them to raise billions of euros in capital and accept huge losses on Greek bonds they hold.

The continent's biggest financial institutions were at the center of talks as leaders entered marathon negotiations in Brussels, at the end of which they have promised to present a comprehensive plan to take Europe out of its crippling debt crisis.

"Between now and Wednesday we have to find a solution, a structural solution, an ambitious solution and a definitive solution," French President Nicolas Sarkozy said as he arrived in Brussels. "There's no other choice."

In addition to new financing for Greece, leaders want to make the banking sector fit to sustain worsening market turmoil and turn their bailout fund into a strong safety net that will stop big economies like Italy and Spain from falling into the same debt trap that has already snapped Greece, Ireland and Portugal.

But before the final deadline on Wednesday, they have to overcome many obstacles.

On Saturday, the finance ministers of the 27-country European Union decided to force the bloc's biggest banks to substantially increase their capital buffers — an important move to ensure that they are strong enough to withstand the panic that a steep cut to Greece's debt could trigger on financial markets.

A European official said the new capital rules would force banks to raise just over euro100 billion ($140 billion), but finance ministers did not provide details on their decision. The official was speaking on condition of anonymity because it had been agreed to let leaders unveil the deal at their first summit Sunday.

"We have made real progress and have come to important decisions on strengthening European banks," George Osborne, the U.K.'s chancellor of the exchequer, said as he left Saturday's meeting.

The deal on banks was likely to be the only major breakthrough ready to announce on Sunday, leaving many important decisions and negotiations to be completed by Wednesday night.

On Friday, the first day of the marathon talks, the finance ministers of the 17 countries that use the euro — and which have found themselves at the center of the crisis because of the currency they share — agreed to demand Greece's private creditors take big losses on their bondholdings.

But they still have get the banks to come along and convince them that the cuts are the best way to ensure that Athens can eventually repay its remaining debts.

The picture in Greece, whose troubles kicked off the crisis almost two years ago, is bleaker than ever. A new report from Athens' international debt inspectors — the European Commission, the European Central Bank and the International Monetary Fund — proved that a preliminary deal for a second package of rescue loans reached in July is already obsolete.

That plan would have seen banks and other private investors take losses of some 21 percent on their Greek bond holdings, while the eurozone and the IMF were to provide an extra euro109 billion ($150 billion) in bailout loans.

But the report showed that in the past three months Greece's economic situation has deteriorated so dramatically that for the bank deal to remain in place, the official sector would have to provide some euro252 billion ($347 billion) in loans. Alternatively, to keep official loans at euro109 billion ($150 billion), banks would have to accept cuts of about 60 percent to the value of their Greek bonds.

"I believe we are now arriving at a more realistic view of the situation in Greece," said German Chancellor Angela Merkel, the country that has long been advocating a more radical solution to Athens' problems.

But Merkel and her eurozone counterpart were on for tough negotiations with the banks.

Charles Dallara, who has been representing private investors in the talks with the eurozone, said Saturday that negotiations that carried on sporadically throughout Saturday were making only slow progress.

"We're nowhere near a deal," he told The Associated Press in an interview.

Dallara, the managing director of the Institute of International Finance — the world's biggest bank lobbying group — said current plans to cut Greece's debt would leave the country as "a ward of Europe" for years.

He declined to say how much in losses banks would be willing to accept, saying only "we would be open to an approach that involves additional efforts from everyone."

The eurozone has been working hard to reach a voluntary agreement with banks, rather than forcing losses onto the lenders, because that could avoid triggering billions of euros on payout for bond insurance and could destabilize markets even further.

However, in recent weeks some officials have no longer insisted that the deal remain voluntary.

Agreement on arguably the most important measure in the crisis plan remained even more elusive Saturday: boosting the firepower of the currency union's euro440 billion ($600 billion) bailout.

Increasing the effectiveness of the fund — called the European Financial Stability Facility — is meant to help prevent larger economies like Italy and Spain from being dragged into the crisis. At the same time, the EFSF may be asked to help governments shore up their banks if they can't raise the necessary funds on financial markets.

But Germany and France still disagree over how to give the EFSF more firepower. France wants the fund to be allowed to tap the ECB's massive cash reserves — an option that Germany rejects. Weaker economies, meanwhile, are wary of signing up to the other two parts of the grand plan — bigger bank capital and cuts to Greece's debt — without assurance that sufficient buffers are in place.

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Sarah DiLorenzo, Elena Becatoros, Raf Casert and Slobodan Lekic in Brussels contributed to this story.

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