Drive to unify euro economy as rescue roadmap set

4th February 2011, Comments 0 comments

Germany and France launched a radical drive Friday to unify the debt-ridden eurozone economy, as eurozone leaders set out their roadmap towards finalising permanent rescue resources.

While plans to down wages provoked an immediate backlash at a European Union summit, a deal in principle to widen the scope of a permanent bailout fund, pending final approval of "concrete" measures in March, allowed the big two and the weakest eurozone states to find common ground.

In exchange for further aid to partner governments struggling to balance their books, Berlin and Paris want shared policy goals and restrictions imposed by all, which they say will make the eurozone a more competitive and efficient economy.

"We want to bring in a competitiveness pact and step by step bring about a more linear shared growth," German Chancellor Angela Merkel said alongside French President Nicolas Sarkozy.

Firm decisions are due to be taken on the size, shape and scope of the permanent stability mechanism at the 27-nation bloc's next summit on March 24 and 25.

Leaders will fix a "global response" to the debt crisis that saw bailouts for Greece and Ireland last year by that date, summit conclusions said.

A special eurozone summit will be staged beforehand to hammer out the details.

"There is a deal that there should be such a deal," Merkel said afterwards.

The pact plan had stirred opposition, with Belgian Prime Minister Yves Leterme attacking a call in the proposals for inflation-linked wage rises to be abolished.

"We will not allow our social model to be undone," Leterme said.

Luxembourg Prime Minister Jean-Claude Juncker, who leads the Eurogroup of finance ministers, also said: "I can't really detect a reason why abolishing the indexation of wages should improve the competitivity of my country or of the euro area."

As well as labour-market reform, the 17-nation currency area's major powers want convergence in corporate tax regimes.

That would have the effect of rubbing out advantages secured by Ireland and others -- Dublin's low rate having already come under pressure during negotiations on its December bailout.

Other changes would see retirement ages evened out, qualifications recognised across linguistic borders to help labour mobility, and a common system for managing banks in trouble.

The Merkel-Sarkozy plan envisages partners introducing ceilings on permissible national debts, mirroring a constitutional "brake" in Germany and new plans for France.

With one in 10 unemployed across the eurozone, amid massive cuts in public spending, the head of the European Trades Union Confederation said Germany and France were out to trample over the little guys.

"This is not a competitiveness pact, it's a perverse pact towards lower living standards, greater inequalities and more precarious employment conditions," said John Monks.

The head of the European Parliament's economics committee also warned the changes would not get an easy ride from lawmakers.

"Merkel and Sarkozy should bear in mind that we are not working to their agenda," said English MEP Sharon Bowles.

Support did, however, come from one of the other star eurozone economic performers.

Netherlands Prime Minister Mark Rutte characterised the goal as "not a race to the bottom, but a race to the top."

First of all, the EU wants to free up its core rescue fund, the 440-billion-euro ($600 billion) Luxembourg-based European Financial Stability Facility (EFSF), to lend its full amount. At present some 200 billion euros must be kept back as a cash buffer.

Greece and election-mode Ireland are each seeking to renegotiate their bailout terms.

Leaders will also consider letting the EFSF buy bonds from countries struggling to raise funds cheaply on markets, or lend the likes of Greece cash to buy back bonds that have already lost value.

The euro crisis "is about to be resolved," financier George Soros said at a meeting in Munich, although he predicted "a two-speed Europe between surplus countries surging ahead and indebted countries sinking under the weight of their debt."

© 2011 AFP

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