The euro slipped after yesterday's meeting, trading at $1.3002 at 12:14 p.m. in Brussels, down 0.1 percent. The Stoxx Europe 600 index was down 1 percent.

Efforts to shore up Greece, which triggered the crisis, were flanked by headway on a German-inspired deficit-reduction treaty and indications that a cap on rescue lending might be boosted to 750 billion euros ($975 billion) from 500 billion euros.

Finance chiefs balked at an investors' bid for an average 4 percent interest rate on new Greek bonds, seeking coupons below 3.5 percent for debt to be serviced until 2020 and below 4 percent over the 30 years of the next Greek package.

The difference between the losses bondholders have offered and those mentioned by EU finance chiefs “comes down to 10 billion or 20 billion euros” over the life of the new bonds, said Carsten Brzeski, an economist at ING Group in Brussels.

“This is just nothing compared to the psychological impact you would get on Spanish or Italian yields if Greece were to go bust,” Brzeski said in an interview today. “They're going to find a deal,” he said on Bloomberg Television.

The contribution of euro governments and the International Monetary Fund to the package will stay at 130 billion euros as pledged in October.

“It's obvious that the Greek program is off track,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing last night's meeting of ministers from the 17 euro countries.

'Green Light'

The stalemate is reminiscent of October's bargaining over bond losses and threatens to spill into next week's leaders' summit. An accord with bondholders is essential to a second financing package for cash-strapped Greece, which faces a 14.5 billion-euro bond payment on March 20.

“We have the green light of the euro group to close the deal with the private sector in the next few days,” Greek Finance Minister Evangelos Venizelos said.

Greece's struggle intruded on the Brussels meeting after bondholders made what Charles Dallara, managing director of the Washington-based Institute of International Finance, told Antenna TV constitutes a “maximum” debt-relief offer.

There was no immediate reaction from the IIF, negotiating on behalf of bondholders, to the euro region's appeal. Dallara is scheduled to hold a press conference at 2:30 p.m. in Zurich.

Failure to wrap up the debt-reduction accord helped drive Greek two-year yields to an all-time high of 206 percent yesterday. In contrast to earlier episodes in the crisis, investors were optimistic that Greece's travails won't spill over to the rest of Europe.

Successful short-term debt sales in the past two weeks in Italy, Portugal, Spain, France and Belgium were smoothed by 489 billion euros disbursed by the European Central Bank in unlimited three-year loans to euro-region banks.

Spain today sold 2.51 billion euros of bills, just above its maximum target for the sale, as a surge in demand helped bring down borrowing costs.

The country sold three-month bills at a rate of 1.285 percent, the Bank of Spain said, the lowest since March and down from 1.735 percent when the securities were last sold on Dec. 20, the day before Prime Minister Mariano Rajoy took over. It sold six-month bills at 1.847 percent, compared with 2.435 percent.

'Correction Mechanism'

The central bank has drawn encouragement from pledges by political leaders to turn Europe into a low-debt economy, enforced by a fiscal treaty that finance ministers said is on track to be signed in March.

The treaty will create an EU-supervised automatic “correction mechanism” that would force governments to fix “significant” deviations from a target structural deficit of 0.5 percent of GDP, according to a Jan. 19 draft obtained by Bloomberg News.

“We have reason to be optimistic that we are not only on the right path, but that we will successfully pursue this path for the rest of the year,” German Finance Minister Wolfgang Schaeuble said.

Under German pressure, countries that don't enact the fiscal pact will be denied aid from the permanent rescue fund, the European Stability Mechanism. Finance ministers agreed to set up the ESM in July, a year ahead of schedule, after reaching a compromise with Finland over how it will award aid.

Finland, one of the four remaining euro-area borrowers rated AAA by Standard & Poor's, pushed through changes to provisions that could force it to underwrite loans against its will. Finance chiefs will sign the ESM treaty on Feb. 20, sending it to national parliaments for ratification.

Germany, Europe's dominant economic power, gave the strongest signal yet that it would allow the temporary rescue fund, the European Financial Stability Facility, to lend its full remaining amount before it expires in mid-2013.

Combining the two funds would boost Europe's unspent crisis-fighting capacity to 750 billion euros. In the past, Germany has backed plans to limit the combined lending at 500 billion euros.

Running the two funds in parallel “is being discussed,” Norbert Barthle, parliamentary budget spokesman for Chancellor Angela Merkel's Christian Democratic Union, said in an interview yesterday in Berlin.

The dual use of the funds “is capable of consensus,” Austrian Finance Minister Maria Fekter said today.

'Improved' Firewall

The IMF repeated its plea for the dual-fund option. Speaking on Germany's Deutschlandradio today, IMF Managing Director Christine Lagarde said: “The idea behind the wall is that it is so big that investors — people who finance, people who speculate occasionally — are discouraged because the wall is too big so that the fire cannot go through. It needs to be improved — the EFSF plus the ESM.”

Meanwhile, the temporary fund will soon be ready to offer insurance to persuade investors to buy bonds, said Klaus Regling, the fund's manager. It would only intervene if a country such as Italy or Spain requests the backup.

A separate battle brewed over who will take the seat on the ECB's Executive Board that will open up when Spain's Jose Manuel Gonzalez-Paramo comes to the end of his eight-year term in May.

In a fight between the richer north and the debt-encumbered south, Luxembourg is seeking to wrest the seat away from Spain by nominating its central bank chief, Yves Mersch, the longest- serving monetary official in Europe.

Spain proposed Antonio Sainz de Vicuna, head of the ECB's legal department, to hold onto a seat that has been in Spanish hands throughout the euro. A third contender, Mitja Gaspari, was put forward by Slovenia. The ministers put off a decision until the next meeting on Feb. 20.

Bloomberg News

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