Europe closes in on single economic governance rules

2nd February 2011, Comments 0 comments

European leaders bid on Friday to stiffen their defences against a lingering debt crisis and overcome disquiet at pre-agreed plans that would see Berlin and Paris dictate core economic policy.

The 27 European Union heads of state and government meet for talks that will also touch on the crisis in Egypt and makeovers for energy and innovation strategies.

Over lunch, though, they want to "set out a clear path towards a comprehensive package" of measures for eurozone re-design including "a determined pursuit of national reforms" aimed at sharpening "macroeconomic coherence," said EU president Herman Van Rompuy.

Ideas on how best to use a short-term 440-billion-euro (600-billion-dollar) fund, as Greece and election-mode Ireland each seek to renegotiate last year's bailout terms, will be examined in the context of preparations for a permanent mechanism.

Final decisions are due at their next summit, planned for March 24 and 25, and a senior EU source said Friday will also determine whether the eurozone's 17 leaders will need a special summit of their own in the interim.

First of all, the EU wants to make the fund's full depth operational. At present some 200 billion euros must be kept back as a cash buffer.

Leaders will also consider enlarging their debt fire-fighting toolkit, such as letting the Luxembourg-based European Financial Stability Facility (EFSF) buy bonds at non-penal rates from countries struggling to raise funds on markets, or lend the likes of Greece cash to buy back bonds that have already lost up to 30 percent of their value trading on open markets.

"This year, Greece needs to find at least 53 billion euros just to avoid increasing its already massive debt," said eurosceptic OpenEurope analysts in a briefing note. "Some sort of restructuring... seems almost inevitable."

According to diplomats, there is also a debate about whether the EFSF could be used in a preventive manner, offering short-term credit lines.

Some leaders want an early bailout for Portugal and a sort of overdraft for Spain, officials indicated.

The trade-off with Germany for further exposure to partners' financial weaknesses will mean both tighter budgetary discipline and convergence of economic policy in order to iron out inequalities in national eurozone economic performance.

"I expect that the German chancellor and the French president will together present their ideas over lunch," said a German government source, saying Berlin and Paris had reached "widespread agreement" in advance.

Under their thinking, a "competitiveness pact" would ultimately see the shared currency zone governed as a single economic entity, with harmonisation of company tax regimes and social policies such as retirement age.

Spanish Prime Minister Jose Luis Rodriguez Zapatero said the other big euro countries, his own and Italy, are "fully behind" the plans, which "will create more market confidence than this whole debate over the size or flexibility of nthe rescue fund."

France and Germany have drawn up a six-point programme that would act to encourage labour mobility, create a common base for professional taxes, modify pension systems and adopt a crisis resolution mechanism for the eurozone banking sector.

They also want to introduce ceilings on permissible national debts, mirroring Germany's constitutional "brake" that limits its structural budget deficit to 0.35 percent of GDP by 2016.

However, the plans have already irritated European Commission president Jose Manuel Barroso, as their management would appear to circumvent the EU executive's existing powers as enshrined in treaties.

"The commission welcomes deepening of economic governance and policy coordination," Barroso said.

"But we are firmly convinced that the treaty provides the right framework... We would not further our cause if parallels structures were to work in an ultimately incoherent manner."

© 2011 AFP

0 Comments To This Article