“Let me say something about the row over bonuses and pay,” Osborne said in a speech to the Federation of Small Businesses.

“Of course rewards for failure are unacceptable — and those who believe in the free market are the first to say so. But a strong, free market economy must be built on rewards for success.”

The Labour Party has heaped pressure on the ruling coalition to curb excessive pay for top executives, using a House of Commons debate to demand the return of a tax on bankers’ bonuses.

“There are those who are trying to create an anti-business culture in Britain — and we have to stop them,” said Osborne.

His comments came as Stephen Hester, chief executive of the state-rescued Royal Bank of Scotland, broke his silence over his decision last month to give up a bonus of almost £1 million in shares.

Hester made his first comments on the furore in a memo to RBS staff, having bowed to intense political pressure and waived his annual bonus of shares worth £963,000 on top of his £1.2 million salary.

In a letter to employees of the bank, 82 percent of which is owned by the British taxpayer after a massive bailout, Hester said press coverage had been “discomforting to say the least”.

The huge bonus had sparked outrage amid government calls for pay restraint, ongoing austerity and economic gloom. Former RBS chief executive Fred Goodwin was also stripped of his knighthood last month.

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Kroes, a member of the Dutch ruling right-wing Liberal party VVD, is not a supporter of Greece exchanging the euro for the drachma, but says: ‘It is absolutely not a case of man overboard if someone leaves the eurozone.’

The commissioner is very critical of the new Greek government and says they are not fulfilling their promises. ‘Too few spending cuts, too little restructuring,’ she says.

She says the Greeks should follow the example of Italy where the new prime minister Mario Monti is taking ‘dynamic action’.

‘And it is creating just as much pain in Rome as it is in Athens,’ Kroes told the Volkskrant.

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Glencore, the world’s largest diversified commodities tradinghouse, will issue 2.8 new shares for each Xstrata share in a deal they said was a “merger of equals.”

The ratio is a 15.2 percent premium to Xstrata shareholders compared with its share price last Wednesday before word leaked out about the merger talks, a joint statement said.

“A merger between Glencore and Xstrata offers a unique opportunity to create a new business model in our industry to respond to a changing environment. It is the logical next step for two complementary businesses,” said Xstrata chief executive Mick Davis, who will be CEO of the enlarged Glencore.

Glencore CEO Ivan Glasenberg will be deputy CEO and Xstrata chairman John Bond will retain his post.

Xstrata shareholders other than Glencore, which already has a 34 percent stake in the mining group, will hold 45 percent of the new group.

Bringing together Xstrata, the world’s fourth-biggest diversified miner, and Glencore will create a group looking to ride an extended surge in demand in coming years for commodities from China and other emerging nations.

As the world’s biggest exporter of coal for power plants and a top copper producer, the combined firm aims to have the bulk to compete with mining sector leaders BHP Billiton, Vale and Rio Tinto.

On Monday, Xstrata shares closed down 1.7 percent while Glencore declined 4.5 percent, against a 1.0 percent fall in the sector, with both still above the level they were at before the potential deal was announced.

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The leaders are caught between their increasingly frustrated partners in the European Union for failing to pass the reforms quickly and workers who went on strike on Tuesday to protest against the austerity measures.

European Union (EU) officials say the full package must be agreed with Greece and approved by the euro zone, European Central Bank and International Monetary Fund before February 15 to allow time for complex legal procedures involved in the bond swap to be completed in time for a March 20 bond redemption.

In some euro zone countries, including Germany and Finland, parliamentary approval is required to raise the bailout money.

In Paris, German Chancellor Angel Merkel on Monday expressed the exasperation among euro zone leaders at seemingly endless arguing in Athens that has yet to produce a definitive acceptance of the austerity and reform demanded by the lenders.

“I honestly can’t understand how additional days will help. Time is of the essence. A lot is at stake for the entire euro zone,” she told a news conference with French President Nicolas Sarkozy.

But leaders of the three parties in the coalition government appeared to need at least one additional day.

The office of Prime Minister Lucas Papademos, a former central banker who heads a government of politicians, said that a meeting of leaders from the conservative, socialist and far-right parties due on Monday had been postponed to Tuesday.

No reason was given for the delay. Papademos held further talks with the “troika” of lenders – the European Commission, ECB and IMF – on Monday.

The party leaders, positioning themselves for a likely general election in April, have balked at accepting another package of deeply unpopular wage and pension reductions, job cuts and tougher tax enforcement measures.

Alarmed by the prospect of yet more budget cuts, Greece’s two main trade unions said they would hold a 24-hour strike on Tuesday in protest against policies they say have only driven the economy into a downward spiral.

Demonstrations are planned in central Athens.

PATIENCE WEARING THIN

Greeks watched the political drama with the same exasperation they have shown throughout the nation’s nearly three-year crisis, mixed with fear of the consequences of leaving the euro.

“We are stuck between a rock and a hard place. We are lost either way but political leaders have to agree,” said Kosmas Georgiou, a 31-year old company inspector. “Going back to the drachma is not an option, it’s disaster.”

“They are delaying this just to look like heroes.”

Merkel made clear that her patience was wearing thin on a deal that affects not only Greece but the wider currency bloc, which fears that a default would hit much larger economies such as Spain and Italy.

One government official said the entire Greek side had to agree terms of the rescue, which would be the second for Athens since 2010, with international lenders before the next meeting of the Eurogroup of euro zone finance ministers.

No date has been set for the Eurogroup meeting, and a European Commission spokesman said it would be held only when Greece had made a commitment to the deal.

Papademos said after five hours of talks on Sunday that party chiefs had agreed measures including wage cuts and other reforms as part of spending cuts worth 1.5 percent of gross domestic product.

But leaders of the PASOK socialist party, the conservative New Democracy and the far-right LAOS party still have to reach agreement on several unresolved issues.

These include labour market reform and shoring up domestic banks. Greece needs the bailout money by mid-March to meet big debt repayments but tempers are rising in the EU over what it sees as Greek dithering on implementing reforms.

Greeks have been worn down by a deep recession, now in its fifth year, and wave after wave of austerity measures imposed under the first bailout.

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The Australian dollar leapt to a six-month high but stocks turned negative after the central bank held rates steady at a review when markets had positioned for a rate cut.

Opinions were divided over whether the wrangling over Greece’s debt restructuring talks would eventually be resolved or trigger contagion across other vulnerable euro zone countries, tempering risk-taking investments.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose as much as 0.4 percent to its highest since September 1, then reversed direction, and last stood barely changed.

Australian shares were among the big losers, ending down 0.5 percent — having been up before the central bank’s afternoon decision to hold rates steady.

Financial spreadbetters expected Britain’s FTSE 100, Germany’s DAX and France’s CAC-40 to open flat.

Japan’s Nikkei average ended down 0.1 percent, slipping from a three-month high just shy of 9,000 hit on Monday.

“Concerns over the Greece issue are limiting real risk taking from investors, even if the environment generally appears to be improving,” said Tetsu Emori, a fund manager with Astramax Co. in Tokyo.

“I’d expect all concerned parties to eventually strike a deal because it is in nobody’s interest if Greece defaults. But a further delay in the debt talks will really hamper sentiment,” he said.

After resisting terms of a proposed new bailout deal which demands strict labour reforms and other austerity steps, Greek political leaders face crunch talks on Tuesday to clinch an agreement needed to avoid a debt default.

The full package must be approved by the euro zone, the European Central Bank and the International Monetary Fund before February 15 in order to complete legal procedures for a bond swap deal for a March 20 bond redemption.

Moreover, some euro zone countries require parliamentary approval to raise the bailout money.

RATE DIFFERENCES

The euro eased 0.2 percent to $1.3107, although it had recovered from an overnight low of $1.3026.

The single currency hit a new record low against the Australian dollar near A$1.2140, as wide interest rate differentials made the Aussie more attractive than the struggling euro.

The Australian dollar jumped more than one cent to a six-month high of $1.0812 after the Reserve Bank of Australia unexpectedly kept interest rates steady at 4.25 percent, although it kept the door open to an easing if conditions deteriorated.

“In the absence of a messy Greek default, there is nothing really at the moment that’s going to stop the Aussie from going and testing all-time highs,” said David Scutt, a trader at Arab Bank Australia. It hit a 30-year peak of $1.1081 in July.

The dollar was up 0.3 percent against the yen at 76.72. Data from Japan’s Finance Ministry on Tuesday confirmed that Tokyo conducted stealth foreign exchange intervention in October-December, even after a massive intervention on October 31 when the yen hit a record high around 75.31.

Commodities retreated with the dollar’s gain against a basket of major currencies.

U.S. crude futures eased after rising above $97 a barrel, while Brent slipped after trading above $116 a barrel.

Spot gold was up 0.1 percent to $1,722 an ounce, trimming gains made earlier on an initial modest rise in equities.

Asian credit markets remained subdued, with the spreads on the iTraxx Asia ex-Japan investment grade index little changed, after tightening sharply on Monday.

The ECB’s generous funding in December and expectations ahead of another such liquidity operation scheduled on February 29 sent three-month Euribor rates, a main gauge of unsecured interbank euro lending, to 1.094 percent on Monday, the lowest level in nearly a year.

Analysts expect consolidation in several equity markets which have recently climbed to near resistance levels, which may then pave the way for a break higher.

India’s main 30-share BSE index is expected to find

major resistance at an October peak of 17,908, after rising as high as 17,829 on Monday.

Shanghai shares fell below a key support of 2,300 on Tuesday. A fall below 2,240-50 will reset the downtrend, while a break above 2,360 points to an eventual move higher.

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Evangelos Venizelos added that a planned meeting by eurozone ministers on Greece originally scheduled for Monday would now be held on Wednesday.

“I will participate in a Eurogroup telephone conference at 1230 GMT” to discuss details of a rescue deal for Greece worth 130 billion euros ($171 billion) which officials have been trying to seal since October, the minister said in a statement.

“Critical issues pertaining to the country’s future remained open” after 12 hours of “tough” negotiations Friday with the European Union, International Monetary Fund and European Central Bank, he said.

The three organisations, which rescued Greece in 2010 with an earlier loan, are demanding further labour cost cuts which Greek unions are refusing to concede amid fears that they could worsen an already deep recession.

Venizelos will brief fellow cabinet ministers before another meeting with senior auditors from the EU, IMF and ECB, known locally as the ‘troika’, a finance ministry source said on Saturday.

The political coalition backing Greece’s interim government is strongly opposed to the troika’s demands for further civil servant cuts and to a reduction in the minimum wage, currently at 750 euros.

Prime Minister Lucas Papademos has reportedly threatened to resign if his coalition backers reject the demanded austerity measures.

The government spokesman on Friday declined to comment on the reports.

“I do not want to make such assumptions,” spokesman Pantelis Kapsis told Real FM radio. “I think the political leaders and the prime minister will jointly take the decisions on how we will proceed from now on.”

Representatives of private holders of Greek debt are also returning to Athens this weekend for more negotiations on a crucial writedown Greece needs to avoid sovereign default.

A spokesman for the Institute of International Finance, the global banking organisation leading the debt writedown talks, said in an email to AFP that IIF chief Charles Dallara and Jean Lemierre, adviser to French bank BNP Paribas, were headed to the Greek capital to continue the talks.

Greece has been negotiating for months to obtain debt relief under the so-called Private Sector Initiative as a condition for receiving a second international bailout from the EU and the IMF, agreed in October.

Eurozone governments and banks have both been playing hardball for weeks in their bid to reduce by at least half the 200 billion euros in privately held Greek debt. The country’s overall debt stands at 350 billion euros.

Papademos said in a statement Friday that Greece had nearly completed negotiations on the eurozone bailout which depends on the debt writedown.

“We are in the final phase of a very critical procedure to form Greece’s new economic programme and complete a loan deal that will lighten the load of the public debt and ensure the country’s financing for many years to come,” he said.

Pressure is mounting for Greece to strike a deal with private creditors.

The finance minister this week said an official offer to creditors must be made by February 15.

Athens faces debt repayments of 14.4 billion euros ($19 billion) on March 20.

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Greece, which is racing to complete talks with the EU and the IMF on a second bailout worth 130 billion euros, had previously estimated that the deficit would be above 9.5 percent of GDP.

“The numbers aren’t final yet but we believe the deficit will come in at between 9.1 and 9.4 percent (of GDP),” the official, who declined to be named, told Reuters.

The official said the smaller deficit was due mainly to the fact that Greece will raise about 2 billion euros from a controversial property tax the government imposed in September in a desperate move to plug fiscal gaps. That would beat a target of 1.7 billion euros.

A deficit of 9.1 to 9.4 percent of GDP would still be above initial EU/IMF targets but it might help Athens which, to secure the bailout, must persuade the European Union and the IMF – which have grown increasingly exasperated with its repeated failures to meet deficit and reform targets – that it will implement long-delayed reforms and slash spending further.

Another senior finance ministry official had said this week that the 2011 budget deficit would most likely be below 9.5 percent of GDP, but did not give more details.

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China is “willing to cooperate with Europe to fight the current crisis. Some people say this means China wants to buy Europe”, Wen told a German-China business forum in the southern city of Guangzhou.

“This a concern and doesn’t fit reality. China doesn’t have this intention and doesn’t have this ability.”

German Chancellor Angela Merkel, in China for a three-day visit to boost her host’s confidence in Europe, also attended the forum along with executives from the energy, chemicals, engineering, banking and electronics sectors.

There are growing concerns in Europe that a recent wave of investment by Chinese companies and government-backed funds will give Beijing too much influence over struggling European economies.

In the latest deal, China State Grid has agreed to pay 387 million euros ($508.2 million) for a 25 percent stake in the national electricity grid of debt-stricken Portugal, Treasury Secretary Maria Albuquerque said Thursday.

European leaders have called on China, which has the world’s largest foreign exchange reserves, to invest in a bailout fund to rescue debt-stricken countries.

China has so far made no firm commitment to provide financial assistance, although Wen said Thursday it was considering getting more involved in bailout funds through the International Monetary Fund.

Analysts say bargain-hunting is behind the recent acquisitions by Chinese companies seeking to expand overseas. The country’s sovereign wealth fund has also sought to diversify away from US bonds.

At the forum Wen also touched on the politically sensitive topic of rare earths — 17 elements crucial in the manufacturing of many high-tech products — amid accusations China unfairly restricts exports of the valuable minerals.

China — the world’s largest producer of rare earths — “has no discrimination when it comes to foreign companies”, Wen told the forum.

State media said this week Beijing was bracing for renewed calls to ease its rare earths controls after the World Trade Organization ruled the country’s limits on key raw material exports broke trade rules.

Merkel, who earlier Friday held talks with President Hu Jintao and the country’s top legislator Wu Bangguo in Beijing, had said that she would raise human rights issues during her visit.

Rights lawyer Mo Shaoping, whose clients include jailed Nobel Peace Prize winner Liu Xiaobo, told AFP Friday that police had prevented him from meeting with Merkel at a reception at the German Embassy on Thursday.

Mo said police told him he was not allowed to attend the meeting due to concerns over social stability ahead of a key Communist Party meeting slated for late this year that will usher in a 10-yearly leadership transition.

The German embassy in Beijing did not immediately comment on the absence of Mo, who also defended the jailed rights lawyer Gao Zhisheng.

Merkel’s visit to Guangdong province will include a meeting with Gan Junqiu, the state-backed Catholic bishop of Guangzhou — the provincial capital — a German diplomatic source said, before returning to Germany on Saturday.

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China “is investigating and evaluating concrete ways in which it can, via the IMF, get more deeply involved in solving the European debt problem through [European Stability Mechanism/European Financial Stability Facility] channels,” Mr Wen said in a joint press conference with German Chancellor Angela Merkel in Beijing.

The comments have revived hopes that China, which holds by far the world’s largest foreign exchange reserves, could add some of this $3.2tn cash pile to existing and future European bail-out funds.

European officials said they believed Beijing had clearly changed its position and more concrete terms of any Chinese contribution were likely to be discussed in two weeks at a delayed EU-China summit.

Mr Wen said it was increasingly “urgent” that a solution be found to the European debt crisis and he called on the international community to co-operate towards that end. The euro rose about half a per cent against the US dollar soon after his words were reported.

Chinese officials have long signalled their willingness to contribute to global efforts to bail out Europe but have also made clear Beijing would not take the lead and would like to see more convincing efforts from Europe’s own governments to resolve the crisis.

European leaders last year agreed to leverage the approximately €250bn left in the eurozone’s rescue fund, the European Financial Stability Facility, as a way to make the EU’s dwindling bail-out resources go further.

One option would be for China to put money into a so-called “co-investment fund” which Klaus Regling, the EFSF chief, has been promoting to public and private investors across the world, including Chinese sovereign wealth funds.

Ms Merkel is in China on a three-day mission to reassure Beijing that Europe is able to tackle its mounting debt problems.

She told an audience of Chinese scholars on Thursday that European countries were taking serious steps to rein in debt and strengthen growth.

“I want to tell you: The euro has strengthened Europe,” Ms Merkel said in a speech at the Chinese Academy of Social Sciences, one of the country’s leading academic institutions, which functions as a think-tank for the government. “This is not a crisis of the euro, it is a debt crisis and a crisis of different levels of competitiveness,” she said.

Ms Merkel’s visit comes just days after the EU decision to make the budget discipline required from the 17 euro economies part of national law, which she had been pushing for strongly.

Ms Merkel, who is scheduled to meet President Hu Jintao on Friday, also stressed that she would press her Chinese counterparts to support actions against Iran and Syria, two of the countries that top the global political agenda.

Acknowledging Beijing’s opposition to a new round of sanctions against Iran, Ms Merkel said it could use its influence to tell Iran to be more transparent about its nuclear programme.

But questions from the audience showed that China’s focus is clearly on Europe. Ms Merkel said the financial crisis required every eurozone member country to “do their homework”, but also solidarity among the group, and claimed that Europe was growing together in the crisis.

That contrasts with Chinese perceptions that the euro group is plagued by frequent friction and difficulties in communicating a clear common agenda.

In response to a question, Ms Merkel said European countries were looking into whether there was a way to limit the negative fallout from sovereign ratings downgrades in financial crises. “We must face [rating agencies'] judgment, they tell the truth,” Ms Merkel said. “But [ratings decisions] can have a reinforcing effect on a crisis.”

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The monetary authority said it expected a 0.5 percent uptick in gross domestic product (GDP) this year, down from the 1.8 percent it projected in October, putting it in line with Ireland’s official creditors at the European Union, the International Monetary Fund and the European Central Bank.

Two Reuters surveys, one of chiefly European economists and the other polling mainly economists based in Ireland, recently forecast 2012 GDP growth of 0.3 and 0.7 percent respectively while the government currently projects growth of 1.3 percent.

“The weakness in the external environment is the key development of recent months and its depth and duration will be central to the prospects for the Irish economy over the next year or so,” the central bank’s latest quarterly bulletin said.

“If the external slowdown persists longer than currently projected, this would make the fiscal targets for this year and 2013 more difficult to attain.”

Dublin traditionally waits until April to update its growth forecasts and Prime Minister Enda Kenny said the government was sticking to the forecast set when it unveiled its budget last December, which was itself a second downgrade in a month.

“These reports are produced on a regular basis and they vary up and down, it’s very difficult for anyone to accurately determine what the final growth figure might be,” Kenny told Newstalk radio, referring to the central bank’s figures.

“Government has set its target out in the budget and we stand by that.”

Notwithstanding the projected fall this year from expected GDP growth of 0.8 percent in 2011, the central bank said the government should “on the face of it” meet its budget deficit reduction target of 8.6 percent of GDP due to the fresh austerity measures and a somewhat better outturn in 2011.

However it said clearly the pattern of growth would to a degree determine developments in reaching this goal, a cornerstone of the EU/IMF agreement.

The bank said the country’s lenders were also following another important part of the bailout deal in the deleveraging of their balance sheets but added that it recognised that progress in this area has to take account of adverse market conditions in the short term.

However, it saw unemployment peaking at 14.6 percent this year, compared with government estimates for the rate to fall from a high of 14.3 percent last year to 14.1 percent this year.

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