Euro crisis: EU leaders hope to reach debt plan, Sarkozy-Cameron spat reveals tensions
BayBak, Azerbaijan | 574 days ago | Wednesday, 26th October , 2011 , 18:00 [pm] | International
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. | An Anglo-French spat over European Union summit timings has exposed simmering tensions between the insiders and outsiders of the single currency club, heightening fears over the European project diverging on incompatible tracks.
While the weekend |
But with disagreement on how to expand the EU’s bailout fund for debt-ridden countries, there is growing doubt a comprehensive deal will be reached.
German Chancellor Angela Merkel, after winning support from her parliament for moves to boost the fund, said there remained “many problems to settle”.
There are fears that the Greek debt crisis could spread to Italy and Spain.
As MPs prepared to vote in Berlin, Chancellor Merkel said it was worth taking the risk to maximise the bailout fund’s spending power in order to safeguard Germany’s future prosperity.
“The world is watching Germany and Europe,” she said. “They are looking to see if we are ready and able to assume our responsibilities during Europe’s worst crisis since the end of World War II.”
Mrs Merkel won a comfortable majority for plans to strengthen the European Financial Stability Facility (EFSF) – the single currency’s 440bn-euro bailout fund.
Later, as she arrived in Brussels, she told reporters: “There are still many problems to settle and negotiations to carry out.”
As attention shifts to Italy and its huge public debt, Prime Minister Silvio Berlusconi has been asked to provide his EU colleagues in Brussels with details of plans for economic reforms.
Sticking points
Among the main points of agreement reportedly reached at the weekend by EU officials are:
European banks must raise more than 100bn euros (£87bn) in new capital to shield them against possible losses to indebted countries
The EFSF will be given more firepower, although it is not clear how this will be achieved
Lenders to Greece will be asked to agree to much deeper losses than the 21% write-off currently on the table.
According to the plan, the 100bn-euro bank recapitalisation would be provided to banks by commercial investors, national governments and the EFSF.
Key points of disagreement remain between the main eurozone powers.
France had hoped that the European Central Bank (ECB) would support the EFSF by providing it with loans that could increase the fund’s total capacity to 2tn-3tn euros.
But this idea was blocked by Chancellor Merkel.
Instead, governments are expected to agree that the EFSF can help out troubled eurozone governments such as Italy and Spain by providing partial guarantees to investors and banks who lend them more money.
Stopgap
BBC business editor Robert Peston says the EU is left with using complicated financial engineering that may only boost the EFSF capacity to about 1tn euros.
He says the markets may be disappointed in this move, which may only buy a year or so – not enough time for fundamental reform of Europe’s debt-ridden economies.
There was also disagreement over the extent of losses that should be imposed on Greece’s lenders, with Germany seeking a 50%-60% haircut.
The ECB is said to be against such an increase in potential losses.
And difficulty about such details appear to have been behind a decision to cancel a meeting of EU finance ministers which was to have preceded the leaders’ summit.
French Prime Minister Francois Fillon said that if Wednesday’s summit ended in failure, “this could tip the European continent into unknown territory”.
Mr Berlusconi is expected to provide only promises of economic reforms in Italy, even though other eurozone leaders have demanded he bring concrete plans to Brussels of how the government intends to reduce its debt.
In a long day of talks with his Northern League coalition partner, an agreement was reached on the contentious issue of raising the retirement age to 67 by 2025.
The BBC’s David Willey in Rome says there is little ground for optimism that the deal is going to satisfy either Italy’s EU partners or international financial markets about the country’s ability to repay its long-term debts.bbc
An Anglo-French spat over European Union summit timings has exposed simmering tensions between the insiders and outsiders of the single currency club, heightening fears over the European project diverging on incompatible tracks.
While the weekend summit was convened with the purpose of saving the euro, Europe’s leaders left Brussels having laid bare EU divisions over the eurozone’s drive for closer integration and what it means for those countries not involved.
The arguments came to a head in several undiplomatic flare-ups between Nicolas Sarkozy, French president and a champion of unfettered euro area co-operation, and David Cameron, the UK prime minister who backs eurozone integration but fears it may be a cover for protectionism.
Mr Cameron’s demands for an extra EU summit this week and safeguards against eurozone decisions undermining the 27-strong single market were given short shrift. “You don’t like the euro so why do you want to be in our meetings?†Mr Sarkozy pointedly asked, according to one account of the meeting. The French president went on to say he had had “enough†of unsolicited British advice on the crisis.
Such theatrical bust-ups with Paris are not uncommon or indeed problematic for Mr Cameron. The premier is attempting to quell a mass rebellion among his eurosceptic backbenchers, who on Monday evening participated in a symbolic vote on whether to hold a referendum on EU membership.
But the underlying issues point to a longer-term challenge for Britain and other “outsâ€, as the eurozone begins to flesh out plans to toughen up fiscal discipline and co-operate on tax and financial affairs in ways that would have a direct bearing on those on the margins of the euro area.
Germany, with some difficulty, secured agreement this weekend to move forward with work on possible treaty amendments, such as making the rules for budget discipline enforceable by the European Court of Justice, and introducing automatic sanctions for those who break the rules.
But the calls for a fresh round of wrenching treaty negotiations dismayed some smaller states that need to put such agreements to public votes, while prompting Britain to say it will “exact a price†in return for the changes.
Mr Cameron wants “safeguards†so that those involved in the fast-track of economic integration do not rig rules in their own favour and threaten the EU’s single market, which extends to all 27 member states. Of particular concern are some eurozone integration proposals circulating in Berlin, including closer tax harmonisation and a common regulatory framework for financial markets in the eurozone.
The trouble for Mr Cameron is that hard bargaining may convince Germany and France to circumvent London. Angela Merkel, German chancellor, warned during the meeting that if treaty change among 27 proved too difficult, there was nothing to stop intergovernmental treaties being signed among the 17. “I don’t think Cameron was ready for that,†said one EU official.
Other diplomats in Brussels point out that the UK demands are hampered by a lack of consistency. Mr Cameron is calling for the “integrity†of the single market to be protected, while at the same time flirting with the idea of attempting to repatriate powers in areas such as financial services.
“I don’t see many countries being sympathetic to an illogical message like that,†said one.
The added complexity for the UK is the differing interests of the “out†group. While its interest broadly aligns with Sweden, seven central and eastern European member states are obligated to join the euro.
Their priority is ensuring they are able to influence the changes to a club they are joining, rather than worrying about the long-term impact on the single market and those left outside. “We’re not fully behind the UK,†said one diplomat from an “out†country. “Their agenda is different.â€ft
, Voice of a Nation[1] Print
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