Markets fall, EU states ready crisis plans

Asian markets fell Thursday, with European markets likely to follow, as European officials stepped up crisis plans for a possible Greek exit from the eurozone. Japan\'s Nikkei 225 stock index and Hong Kong\'s Hang Seng index slumped more than 0.5 percent in late afternoon trading, extending Wednesday\'s sharp drops. European stock futures indicated a lower opening. The euro dropped below $1.26, its lowest level against the U.S. dollar since July 2010. French President Francois Holland challenged German Chancellor Angela Merkel on the euro during his debut at a special informal European Union summit Wednesday. He argued that pooling eurozone debt liability through euro bonds had to be considered as an option for saving the currency and revising eurozone economies. \"All ways to increase growth\" must be considered, \"and euro bonds are part of the discussion,\" he told Merkel. But Merkel insisted: \"The [EU] treaties forbid taking on a mutual liability. That includes, in our opinion, euro bonds.\" She said the bonds -- which would raise Germany\'s borrowing costs -- would not create the eurozone economic growth Hollande claims \"because the very similar interest rates which we have had over many years have basically led to grave and wrong developments.\" She said the bonds, with their comingled debt, would in fact remove weak countries\' incentives to clean up their fiscal acts. Hollande\'s team suggested France, Europe\'s No. 2 economy, might refuse to ratify Merkel\'s fiscal pact compelling debt and deficit reduction in the eurozone unless euro bonds were recognized as a potential tool, the British newspaper The Guardian reported. Merkel appeared isolated, The Guardian said, while Hollande was supported by Spain, Italy and the European Commission, the EU\'s executive body, which now backs a \"roadmap\" supporting the medium-term prospects for euro bonds. The summit produced no major announcements, and officials said no decisions were expected until a formal EU leaders summit June 28-29. That summit would take place after follow-up Greek elections and a French parliamentary poll June 17. Eurozone officials have expressed concerns the Greek vote could lead to a government that rejects the bailout austerity plan Greece\'s previous governments agreed to with the EU and International Monetary Fund. They say they see the French parliamentary elections as a litmus test of support for Hollande\'s pro-growth policies. The 17 eurozone finance ministers agreed Monday to develop national contingency plans in case Greece drops out of the common currency, eurozone officials said Wednesday. The agreement, following a recommendation from a eurozone finance ministers working group, called for each eurozone country to \"prepare a contingency plan, individually, for the potential consequences of a Greek exit from the euro,\" officials said. The contingency plans would seek to buffer government bond markets, other financial markets and banks in case Greece leaves the common currency, which would be unprecedented. \"All the contingency plans come back to the same thing -- to be responsible as a government is to foresee even what you hope to avoid,\" Belgian Finance Minister Steven Vanackere was quoted by The Wall Street Journal as saying before attending Wednesday\'s EU summit.