Eurozone Leaders In Rome For Mini-Summit

The leaders of Germany, France, Spain and Italy are meeting in Rome at a mini-summit that could expose major differences over how to deal with the single currency crisis.

German chancellor Angela Merkel was ambushed at the G20 meeting in Mexico by world leaders who feel her insistence on austerity in cash-strapped countries and refusal to unlock the wealth of their richer neighbours is making matters worse.

The general consensus among Francois Hollande of France, Mario Monti of Italy and Mariano Rajoy of Spain is that the financial punch of the two European bailout funds should be used directly to reduce borrowing costs in the eurozone.

Germany, together with the other so-called 'triple-A' countries: Finland, the Netherlands and Austria, believes that reducing borrowing costs would reward countries like Greece for allowing their finances to spin out of control.

Mr Monti, who is hosting today's meeting, believes billions of euro in the war chest could be used to purchase the debt of struggling countries in order to reduce the interest, or yield, those governments are being forced to pay.

The European Financial Stability Facility, or EFSF, is the temporary bailout fund, which will soon be joined by a permanent account called the European Stability Mechanism.

There's more than a hint of self interest: both Italy and Spain have seen the yield on their 10 year treasury bonds rise above the psychological barrier of 7%.

That means the cost of funding their governments has become difficult to sustain, especially when coupled to low growth, high debt and bloated public sectors.

And the differences between Germany and the other three doesn't end there.

France would like to see banks in the eurozone regulated by a single authority - perhaps the European Central Bank - and extra protections for people who deposit money in bank accounts.

The idea is to stop bank customers panicking and pulling their money out of banks in troubled countries, as has happened in Spain and Greece, by getting wealthier countries to help guarantee their money.

Germany has made it clear it would only accept such a scheme if there is closer fiscal and political union in Europe; for example jointly setting VAT and income tax levels across the 17 member eurozone bloc.

That's anathema to France, which doesn't want to see more powers transferred to a central authority.

Countries in the EU but outside the eurozone are also watching closely.

That includes the UK, which would see any attempt to create a stronger "union within a union" as damaging to the single market.

The eurozone's "big four" accepts that cuts and savings are essential, but there's a growing consensus among G20 countries that wealthier countries in Europe (Chicago Options: ^REURUSD - news) will have to transfer some of their cash to help the poorest.

There may be other matters on Mrs Merkel's mind.

After the news conference in Rome, she will travel to Poland to watch Greece take on Germany in the Euro 2012 quarter-finals.

With both countries eyeing each other warily over the financial and political problems in Athens, the match could generate more heat than usual.