Debt crisis: France and Germany clash at euro summit

Both Spain and Italy are demanding that the eurozone show them "solidarity" because they have implemented EU austerity measures, but have still seen substantial increases in the cost of their government borrowing on the bond markets.

Yesterday Spanish bond yields passed the critical 7pc mark again.

EU officials have confirmed that negotiations have begun on plans to use eurozone bail-out funds, worth ?740bn (?593bn), to buy new Spanish and Italian bonds to ease borrowing costs at debt auctions over the summer.

The moves have run into opposition from Germany ahead of a vote in the Bundestag parliament today, where Mrs Merkel requires a two-thirds majority of MPs to ratify the creation of a permanent eurozone bail-out fund.

In order to prevent a parliamentary rebellion over the new fund, which means an extra contribution of ?168bn from German taxpayers, Mrs Merkel insists that help for Italy or Spain be attached to strict conditions, seen as politically toxic in both Rome and Madrid.

The temperature of the debate was raised after a senior German official close to the chancellor poured scorn on the demands being made by the Italian and Spanish.

"We would warn against exaggerated scaremongering," said the official.

Mario Monti, Italy's technocrat prime minister, is demanding help to bring down borrowing costs currently at 6pc, near crisis point, in return for pushing through controversial pension and labour reforms.

Unless he can show progress, Mr Monti, who is an unelected appointee as head of government, could face a rebellion in the Italian parliament, tipping Italy into political turmoil that would deepen its borrowing problems, plunging the eurozone into its worst crisis yet.

Giorgio Napolitano, Italy's president, yesterday warned that he was worried by growing conflict amid the Italian political parties, jeopardising Mr Monti's technocrat, national unity government.

"It is worrying that at the same time, the disputes and conflicts are increasing among the parties that support the government," he said.

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