European finance ministers ruled out efforts to spur thefaltering economy and showed no signs of taking up a proposal byU.S. Treasury Secretary Timothy Geithner to increase the firepowerof the debt crisis rescue fund.

Inviting Geithner to a euro meeting for the first time, theEuropean finance chiefs said the 18-month debt crisis leaves noroom for tax cuts or extra spending to spur an economy on the brinkof stagnation.

“We have slightly different views from time to time with ourU.S. colleagues when it comes to fiscal stimulus packages,”Luxembourg Prime Minister Jean-Claude Juncker told reporters todayafter chairing the meeting in Wroclaw, Poland. “We don't see anyroom for maneuver in the euro area which could allow us to launchnew fiscal stimulus packages. That will not be possible.”

Europe's economy will barely grow in the second half of 2011, acasualty of the debt buildup that 256 billion euros ($353 billion)in aid for Greece, Ireland and Portugal has failed toextinguish.

Geithner made little headway with a call for Europe to boost thecapacity of the 440 billion-euro rescue fund, known as the EuropeanFinancial Stability Facility, by enabling it to tap the EuropeanCentral Bank.

'Non-Member'
Juncker said there was nodiscussion of expanding the fund today — at least not while theAmerican guest was in the room.

“We are not discussing the increase or the expansion of the EFSFwith a non-member of the euro area,” he said. German FinanceMinister Wolfgang Schaeuble spoke of a “very intensive but friendlydiscussion” and Austrian Finance Minister Maria Fekter found it“peculiar” to be lectured by the U.S., a country with higheraggregate debt than the euro area.

Instead, the ministers recommitted to a July 21 decision toempower the fund to buy bonds in the primary and secondary market,offer precautionary credit lines and create a bank-recapitalization facility. The target for completing nationalapprovals of the new powers slipped to mid-October.

Geithner preached the lessons of the emergency banking supportprovided by the Treasury and Federal Reserve in reaction to thecollapse of Lehman Brothers Holdings Inc., mixing it with criticismof Europe's crisis management coordination.

'Permanent Message'
Europe projects an imageof “ongoing conflict” between national governments and the centralbank, hampering efforts to put the economy on a sounder footing,Geithner said at a banking conference in between euro meetings.

“Your financial challenges in Europe are eminently in yourcapacity to manage financially, you just have to choose to do it,”he said.

Echoes of that appeal came from ECB President Jean-ClaudeTrichet, six weeks from the end of an eight-year term as theoverseer of euro interest rates.

“Our permanent message is of course to be ahead of the curve,”Trichet told reporters. “All that I heard goes in this direction.But the problems are not words, the problems are deeds.”

The ECB was in the forefront again yesterday, joining othermajor central banks in offering dollar loans to ease a liquiditycrunch that had confronted European banks with the highest costsfor obtaining the U.S. currency in almost three years.

Finance chiefs stuck by the view that commercial banks haveenough capital to ride out the turbulence that has driven the bondsof Greece, the epicenter of the crisis, to less than half theirnominal value.

'Substantial Improvement'
Trichet hailed anaccord between governments and the European Parliament that willtighten the euro area's economic management and make it easier toimpose sanctions on countries that overstep the budget-deficitlimit of 3 percent of gross domestic product.

The new rules, to take effect by Jan. 1, mark a “substantialimprovement,” Trichet said.

The debt overhang is taking its toll on the wider economy, theEuropean Commission said yesterday. It cut its growth forecast to0.2 percent for the third quarter and 0.1 percent in the fourth,down from projections of 0.4 percent for both periods.

“Recovery is stalling in the second half of the year, but we donot forecast a return to recession,” European Union Economic andMonetary Commissioner Olli Rehn said. “Uncertainty and stress infinancial markets is now having negative ramifications in the realeconomy and is hampering our growth prospects.”

Greek Aid
Greece is now looking to theministers' next meeting, on Oct. 3, for a decision on the releaseof an 8 billion-euro loan installment. The loan would be disbursedby mid-October, enabling the government to pay its bills throughthe end of the year.

The fate of future Greek loans remains tied up by a demand byFinland, one of Europe's six AAA-rated countries, that it receivecollateral, potentially in the form of real estate or shares innationalized Greek banks.

While a final agreement eluded them, the ministers agreed on theprinciple that collateral must carry a cost, with the goal oflimiting its use to Finland.

“There is unity that collateral, first of all, must be open toall and, second, must cost something,” Austria's Fekter said.

On personnel matters, the officials set a Sept. 27 deadline fornominations to replace Germany's Juergen Stark on the ECB'sExecutive Board. Stark, an opponent of the bank's bond-purchaseprogram, said last week he will quit before his term ends in May2014.

The only candidate so far is German Deputy Finance MinisterJoerg Asmussen.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.