European finance ministers pledged to roll out a bulked-uprescue fund next month, leaving Greece and Italy on the front linesuntil then in the fight against the debt crisis.

Greece was ordered to provide written acceptance of bailoutterms in order to win an 8 billion-euro ($11 billion) loaninstallment by the end of November, while Italy was pressed to turnbudget-cut promises into reality.

Greece's reforms “have to be carried out immediately, we cannotwait until there's a new government, because that could be inMarch,” Austrian Finance Minister Maria Fekter told reporters todaybefore the second day of a European finance meeting in Brussels.“We need confirmation in writing from all parties.”

Europe is battling to regain the upper hand in the debt crisisafter political dramas in Greece and Italy provided unexpecteddistractions and soured international confidence in a package ofmeasures hammered out last month.

“This isn't a crisis you can solve quickly, it is a monster withmany heads,” Dutch Finance Minister Jan Kees de Jager said lateyesterday.

European officials are consulting investors and credit- ratingcompanies over two options for translating the rescue fund's 440billion euros in guarantees into as much as 1 trillion euros ofspending power.

The first idea is to bring down troubled countries' borrowingcosts by issuing “partial protection certificates,” a form ofinsurance for bond sales. One undecided point is whether thecertificates would remain attached to the bonds or tradefreely.

The second option is to create one or more special investmentvehicles that would court outside investment in weaker Europeanstates' bonds, potentially from sovereign wealth funds, privateinvestors or cash-rich emerging markets such as China andRussia.

Known as co-investment funds, the special vehicles would consistof two or three layers: a first-loss guarantee from the EFSF, afreely tradable equity tranche and, potentially, a freely tradedsenior debt tranche. The funds may be channeled through anInternational Monetary Fund trust fund or administrativeaccount.

G-20 Summit

Finance ministers intend to complete “legal and operationalwork” by the end of November, with “implementation” set forDecember, according to a presentation by the rescue fund, known asthe European Financial Stability Facility.

“It's all very well saying we've got a firewall, but the eurozone now need to convincingly show the world that the firewallexists and it's got sufficient resources in it,” said Chancellor ofthe Exchequer George Osborne of Britain, the largest of the 10 EUcountries outside the euro.

Efforts to attract international donors hit a roadblock at lastweek's Group of 20 summit in France, when the heads of the world'sup-and-coming powers called on Europe to do more to help itselffirst. Russia would channel more aid through the IMF in exchangefor more influence on IMF decision-making, the Kremlin saidyesterday.

Meantime, Japan's government said today that it purchased 10percent of the 3 billion euros of bonds sold by the EFSF yesterday.By contrast, Japan bought more than 20 percent of the fund'sinitial issue of five-year securities in January. China's centralbank declined to comment on any Chinese participation inyesterday's sale.

Also unsettled is whether the European Central Bank willcontinue to buy hard-hit countries' bonds once the rescue fundassumes that task. Over opposition of Germans on its council, theECB has bought 183 billion euros of bonds since May 2010.

European leaders scratched a reference to the ECB's bond-buyingprogram from a summit communiqué on Oct. 27, loathe to make publicdemands on the independent central bank. Irish Finance MinisterMichael Noonan said the ECB can't shed the market-supportduties.

The central bank “must continue to play a role until the EFSFfirewall is put in place, whenever that may be,” Noonan said. “Andeven when it has been put in place it's going to be tested, so Ithink the ECB must carry out a parallel function until it's quiteclear the new firewall is doing its job.”

Europe's immediate focus was on Athens. Greece struggled to forma cross-party government after last week's call by Prime MinisterGeorge Papandreou for a referendum on the next bailout led Europeanleaders to speak publicly about pushing the country out of theeuro.

Emergency Government

The stratagem brought down Papandreou, now set to hand over toan interim leader to run an emergency government with the power toenact austerity measures and pave the way for new elections.Negotiations on a new government continued early today.

The Greek turmoil contributed to a 2.5 percent slump in the eurolast week. The currency slipped 0.1 percent today to $1.3761 as of9:35 a.m. in Brussels.

Europe is asking of Greece what it got from Portugal earlierthis year: a pledge during an election campaign by both mainpolitical forces that whoever wins will stay the austerity course.Portugal's victor, Pedro Passos Coelho, was rewarded with a 78billion-euro aid package.

European governments approved Greece's latest installment onOct. 21, only to retract it after the referendum gambit threwGreece's budget cuts into doubt. Finance chiefs agreed last nightthat the money won't be released until Papandreou's Socialists andthe center-right New Democracy party headed by Antonis Samarasdeliver a signed pledge to enact the cuts.

Italy, with Europe's second-biggest debt load, prepared to hostEuropean Commission inspectors charged with making sure thatplanned budget cuts and economic reforms become reality. Thatmission, starting today or tomorrow, will be in cooperation withthe ECB, said Luxembourg's Jean-Claude Juncker, who leads the groupof euro-area finance ministers.

Prime Minister Silvio Berlusconi denied a report in Il Fogliothat he is on the verge of resigning to make way for an Italianversion of a unity government with a budget-cutting mandate. A testof strength comes today on a normally routine vote to rubber-stamplast year's budget report that may show whether Berlusconi stillhas a majority in the 630-seat Chamber of Deputies.

Italian bonds were little changed today after slumpingyesterday. The extra yield on Italian bonds over 10-year Germanbonds was 486 basis points, close to yesterday's euro-era record of491 basis points.

“Italy is not in a situation that's comparable” to Greece,German Finance Minister Wolfgang Schaeuble said. “Italy's realfigures don't justify this nervousness in markets.”

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