Italy and Spain said Thursday they were withholding support from a proposed EU growth pact pending short-term emergency measures to drive down their borrowing costs, officials said.
EU president Herman Van Rompuy announced that leaders had agreed on a package of measures worth some 120 billion euros to breathe life into floundering economies but Rome and Madrid held off on agreeing a wider "growth pact."
A member of the Italian delegation at a closely watched European Union summit said Madrid and Rome had "no reservations on the substance, but want this (pact) to be part of a larger solution."
"We are in favour of the growth pact, we are not blocking it, but there must also be urgent measures," said a Spanish diplomat.
Van Rompuy acknowledged: "It happens there are two countries who are very keen to make sure that there is an agreement both on the long term measures and on the short term measures but I wouldn't say there was any blockage."
"The key element is that we boost the financing of the economy by mobilising around 120 billion euros for immediate growth measures," added Van Rompuy.
Van Rompuy said the measures already agreed included a 10-billion euro capital injection into the European Investment Bank that would allow it to plough 60 billion euros into small businesses and infrastructure projects.
In addition, unspent EU funds would be redirected to the most needy countries and there would be joint "project bonds" to finance 4.5 billion euros worth of cross-border infrastructure programmes.
Spain and Italy have seen their borrowing costs soar as markets lose confidence in their ability to reduce huge deficits. They are seeking measures such as allowing the EU's bailout funds to intervene to buy their bonds directly and bring down the rate.
One EU diplomat said that the "Italians and the Spanish had taken the pact hostage."
"If we want an agreement on short-term measures before the markets open, we need a eurogroup tonight, otherwise the markets will wake up without a growth pact," this diplomat said.
Another European diplomat said another option on the table was to give the eurozone's new rescue fund, the European Stability Mechanism (ESM), a banking licence so it could directly access European Central Bank funds.
However, Germany, Europe's paymaster and political powerhouse, has been cool on the idea and insists that any bond buying come with strict conditions.
Berlin is also opposed to giving the ESM a banking licence.
Source: AFP Global Edition