A French effort to turbo-charge the eurozone rescue fund by turning it into a bank that could draw money from the European Central Bank is dead, Dutch Finance Minister Jan Kees De Jager said on Saturday.
The plan, long championed by President Nicolas Sarkozy and the cause of tension with German Chancellor Angela Merkel ahead of face-to-face talks between the pair in Brussels late Saturday, "is no longer an option," De Jager said.
The minister said two options remain for "leveraging" the 440 billion euro ($610 billion) European Financial Stability Facility (EFSF) into a trillion euro-plus financial firewall that could protect Italy, the big worry after problems with a new Greek rescue are resolved.
But, without spelling them out, De Jager stressed that "neither" remaining option would involve the ECB after talks between eurozone ministers in Brussels that moved Saturday lunchtime on to the subject of how much banks will need to be recapitalised and when.
Opposing the French bid, Berlin would prefer to use the EFSF to insure investors against future potential losses, hoping this will restore much-needed confidence in the bonds of shaky eurozone members.
The two options, according to a German government source, are "the partial insurance of newly issued bonds" by struggling eurozone countries or finding "new possibilities of cooperation with the IMF."
To date, an unwritten rule has seen the IMF chip in one euro for every two directed towards debt rescue activities by the European Union.
Under the first option, the EFSF would guarantee a part of the bonds issued by heavily indebted countries, encouraging investors to buy them and so allowing such eurozone states continued access to funding.
De Jager cited "big differences" among eurozone countries over which option should prevail.
The International Monetary Fund is actively involved in European rescue efforts, having helped bail out Greece and then Ireland in 2010, followed by Portugal early this year.
IMF managing director Christine Lagarde said on Friday of the broader crisis response sought from back-to-back summits on Sunday and Wednesday next week that the Washington-based global lender of last resort "will do all it can" to help Europe find a lasting solution.