Euro Crisis: Belgium sides with Germany

The Belgian government has decided to back plans to allow the Euro emergency fund, the EFSF, to guarantee sovereign bonds. The decision means that Belgium is siding with Germany in its war of words with France.

Belgium's Inner Cabinet met to discuss the Euro rescue ahead of Sunday's meeting of EU heads of state and government in Brussels.

The summiteers will be considering a second European support package for Greece and the recapitalisation of European banks. They will also look at how much of the burden private investors will have to shoulder when Greece defaults on its debts.

At present the haircut is 21%, but there is now speculation banks might have to take a hit of up to 60% on loans to Greece.

France and Germany differ on how the emergency fund should be used to limit the damage following a Greek default. France favours turning the EFSF into a bank, while Germany wants to guarantee sovereign bonds.

It remains to be seen whether any firm decision will be taken by the summiteers in Brussels. A second summit meeting has already been pencilled in for Wednesday.

Belgian Premier Yves Leterme (Flemish Christian democrat) is wary of the reaction of the money markets: "I think there is now a major risk that on Sunday there will be a discussion without any firm final conclusion. I think we should try to avoid this and go as far as possible".