EU leaders feel rising global debt pressure

15th June 2010, Comments 0 comments

European leaders will try to nail down credible strategies at a summit on Thursday to slash debts and tighten cross-border "economic government", amid rapidly intensifying global pressure.

As fears grow over Spain's debt exposure, subtle prods administered before a Greek emergency rescue are turning into blunt demands for action in the United States, Japan and Canada -- the G7 partners with Europe's big four of Germany, France, Britain and Italy.

While the new British prime minister and summit debutant, David Cameron, has other issues on which he may put up obstacles, German Chancellor Angela Merkel admitted in Berlin late Monday that "Spain, or any country, knows that it can make use of this mechanism at any time, if necessary.

"If there are problems -- and I don't think we should bring it about by talking about it -- then this mechanism can be activated at any time. The conditions are clear," she said.

G7 finance ministers fear that problems with Spain's economy -- which is far bigger than that of Greece, with its banks heavily involved in Latin America -- could undermine global recovery.

The Spanish parliament approved a fresh 15-billion-euro austerity plan last month, after 50 billion euros of radical cuts announced in January.

Madrid was also expecting a warning on Tuesday that more will likely be required next year, along with other weak economies in breach of EU deficit limits including politically paralysed Belgium.

"We are all concerned... with the need for certain vulnerable European economies to act quickly to fiscally consolidate," said Canadian Finance Minister Jim Flaherty on Monday.

"The markets have made it clear that they discern weakness there because of substantial indebtedness and so we remain of the view that action needs to be taken by those economies."

A string of leading EU figures have had to deny persistent reports that Spain is preparing to tap into a 'shock-and-awe' emergency fund running to 500 billion euros of loans and guarantees.

Coughing up "is not even a working hypothesis," said Luxembourg prime minister and Eurogroup chief Jean-Claude Juncker.

Spain "is working to ensure that these rumours remain unfounded, as is currently the case", was the slightly more opaque comment from Madrid's Economy and Budget Minister Carlos Ocana.

Merkel, enjoying influential support from eastern powerhouse Poland, may have seen off French President Nicolas Sarkozy's call for eurozone countries to run their affairs together.

If Sarkozy backtracked from his call for a new "secretariat" for the 16 euro countries, he does however support Germany's proposal for sanctions, including the withdrawal of voting rights, for EU members in serious breach of bloc fiscal rules.

"It is very important to send out a signal to Europe that we do not want a split, that we don't have first class and second class members," Merkel said after weeks of sniping over a perceived lack of German solidarity.

But the eurozone giants still face a battle to convince Cameron to back bids for the EU to vet members' budgets and complete a jigsaw of financial industry regulation.

Convincing Cameron of anything that will be seen in London as encroaching on precious sovereignty and threatening the City of London will be a big task.

Nevertheless, Berlin and Paris are determined to secure his backing for a bid to persuade hesitant leaders of the Group of 20 major global economies to bring in a financial transaction tax and a global banking levy at a summit later this month in Canada.

Elsewhere on a busy agenda, the EU's 27 member states will formally approve Estonia's accession as the 17th member of the eurozone from January 1.

They are also expected to pave the way for accession talks to open with Iceland and should address thorny diplomatic issues including seriously strained ties between Israel and another EU membership candidate in Turkey.

© 2010 AFP

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