Brussels, 08/05/2010 (Agence Europe) - As expected, the political leaders of the eurozone gave their approval on Friday 7 May 2010 to a bailout package for Greece but their overriding concern was to ensure stability across the whole of the eurozone. Rising to the challenge of the danger of financial meltdown and the impact this would have on the euro and their own countries' economies, heads of state of the sixteen countries in the euro committed to tighten EU budget discipline and set up a European Stabilisation Mechanism to ensure the financial stability of the eurozone. The College of EU Commissioners will meet up on Sunday morning, 9 May 2010, to issue a proposal that will be submitted later the same day to the EU's economics and finance ministers meeting in an ECOFIN Council so that the entire package can be approved before the markets open on Monday morning.
Approving the Greek aid package introduced by Eurogroup (eurozone finance ministers, see EUROPE 10131), the EU16 eurozone countries made a commitment in a joint statement to pay the first section of the loan to Greece 'by 19 May 2010,' the day when Greek bonds to the tune of €9 billion become due. They repeated their support for the 'ambitious' and 'realistic' Greek government austerity programme that prime minister George Papandreou has promised to implement in full.
To avoid the Greek crisis spreading around the eurozone and to reassure the money markets, the joint statement focuses on consolidation of public finances, stronger economic governance and tackling speculation. All the eurozone institutions (Council of Ministers, European Commission and European Central Bank) and eurozone Member States agree that all available instruments will be used to ensure stability in the eurozone, explained Herman Van Rompuy, reading out the joint statement to the press. These resources include agreement to use all 'necessary measures' to achieve the eurozone countries' budget targets this year (and into the future) in line with the excessive budget deficit proceedings (covering three eurozone countries at present). Depending on its situation, each country says it is 'prepared' to take necessary measures to speed up budgetary consolidation and they all request the Commission and Council to ensure the recommendations made under the Stability and Growth Pact are 'strictly' respected.
Due to the independence of the ECB, the heads of state had few comments to make about the role of the Frankfurt-based bank, simply repeating their support for the ECB's action to ensure eurozone stability. The President of the European Commission and the President of the European Commission did not comment on any possible further measures that might be taken by the ECB to stabilise the euro, but the Italian prime minister, Silvio Berlusconi, said that the ECB had indicated that it would do all it could to support gilts and bonds that are issued by the eurozone countries and it had not ruled out the purchase of bonds by the ECB. The President of the ECB, Jean-Claude Trichet, refused to comment.
Another instrument designed to respond rapidly to the current crisis, the new European Stabilisation Mechanism, was not set out in any detail because the shape and funding of the mechanism will be announced on Sunday 9 May 2010 by the Commission. Areas reported to be under consideration for the new mechanism include giving the Council of Ministers the option of bailing out a Member State (under Article 122-2 of the Treaty, authorising financial aid in the event of natural disasters or acts of God - exceptional events over which countries have no control) and giving the Commission the option of raising funds on the markets by taking out an EU loan (guaranteed by the Member States). Such a move was initially suggested months ago at the outbreak of the Greek debt crisis but was not taken up at the time.
In terms of longer-term governance issues, the eurozone leaders are preparing for the reflections of the President of the European Council's task force, which will now move up a gear. The joint statement is rather vague here, simply noting that the European Commission will set out further details in a report next week on three areas: extending and boosting budget surveillance and coordination, taking account of changes in countries' national debt and competitiveness; tightening up the Stability and Growth Pact's rules and surveillance procedures and introducing 'more effective sanctions'; and introducing a 'robust' crisis management system respecting each Member State's responsibility for its own budget. As yet, there is no talk of the idea of forcing Member States to submit their budget plans to Eurogroup beforehand. Germany is not won over to the idea of national budget decisions being examined by Eurogroup before they are introduced by the country in question.
The eurozone leaders highlight the importance of making rapid progress in improving financial regulations and financial supervision. Increasing transparency on the derivatives markets and influencing the role of credit rating agencies are some of the EU's main priorities, they explain. The leaders say they will speed up work on whether the financial industry should make a 'substantial' and 'fair' contribution to the bailout costs arising from the financial crisis and the costs of introducing new instruments to combat speculation about countries' sovereign debts. The June 2010 European Summit will examine the issue in the light of proposals from the European Commission.
'We face a serious situation in the eurozone,' and must take a responsible attitude and demonstrate solidarity, said Herman Van Rompuy, his comments echoed by the President of the European Commission, José Manuel Barroso, who expressed Europeans' 'clear determination' to do 'whatever it takes' to 'defend the euro' whether through a public finance 'Consolidation Pact' or the 'tangible' proposals to be set out by the Commission on Sunday.
George Papandreou: 'Need to safeguard the eurozone goes beyond the Greek problem'
In a short statement read out to reporters after the summit, the Greek prime minister, George Papandreou, welcomed the official activation of the Greek aid package. After the very difficult decisions that we have taken for Greece but also for Europe in recent days, he said, along with a very ambitious austerity package that finally paves the way for activation of the EU-International Monetary Fund aid package, 'we have now reached the final stage in the process,' said Papandreou. The first section of the aid package will be released over the next few days, ahead of the 19 May refinancing deadline, to enable Greece to refinance its debt without having to take a further battering on the financial markets, he explained, adding that the problem was not restricted to Greece alone. The socialist prime minister said that the 'need to safeguard the eurozone goes beyond the Greek problem,' because what is at stake is no less then than the 'stability of Europe itself'.
Angela Merkel: Very clear signal to speculators
The German Chancellor, Angela Merkel, did not speak at a press conference after the summit, preferring to make a very brief statement to the media when she left the Council of Ministers building, explaining that the politicians had noted massive speculation against the euro as an entirety, whence the need to take measures that go beyond the Greek support package. Angela Merkel mentioned firstly the agreement to accelerate budget consolidation in the Member States; secondly, eurozone leaders had agreed to set up an EU instrument to defend the eurozone against speculators; and thirdly, the eurozone leaders agreed to speed up reform of financial market regulations. She said the summit had sent a 'very strong message' that the eurozone countries have the political will to do all it takes to preserve the stability of the single currency, describing the signal as sending a clear message to anyone speculating against the euro.
Nicolas Sarkozy: Strong measures to deal with an exceptional situation
The French President, Nicolas Sarkozy, said that eurozone was going through probably the worst crisis in its existence and heads of state had made 'very important decisions'. The three priorities set out in the Franco-German open letter had been taken up and all the EU institutions and the eurozone Member States had decided to do everything necessary to ensure the stability and unity of the eurozone. He said they had decided to boost eurozone governance and had decided to wage a relentless war against speculation by regulating the financial markets. He mentioned two immediate decisions -1) confirming the support of eurozone countries for the Greek government, which has 'acted courageously' and whose programme matches the scale of the problem and will enable the Greek economy to build on a healthy foundation, he said. Eurozone countries will provide Greece will a loan package of €80 billion, totalling €110 billion together with loans from the IMF. Greece will receive the first section of the loan 'in the next few days'; 2) eurozone countries have decided to introduce a European Stabilisation Mechanism to preserve financial stability of the eurozone. The finance ministers of all 27 Member States will be meeting up on Sunday 9 May 2010 to finalise the new European Stabilisation Mechanism's technical details. Sarkozy said that speculators should take note that the mechanism would cost them dear.
Nicolas Sarkozy said that the eurozone leaders had decided to go further and learn the full lessons of this crisis by providing the eurozone with the tools it needs to ensure such a crisis does not happen again. He said they had decided to give the eurozone 'genuine economic governance'. The group of experts chaired by President Van Rompuy will move up a gear in its work as the eurozone leaders have already agreed on the basics, namely the need to boost economic surveillance and the coordination of economic policies in the eurozone; revising the Stability and Growth Pact to increase sanctions for consistent failure to respect the rules; introducing a crisis management system (Sarkozy said he had suggested that this should be done by beefing up Eurogroup management). Sarkozy said they had decided to take all the measures necessary to achieve budget targets in line with their commitments and each country would take the necessary measures, depending on the situation in their country.
Sarkozy said the leaders were absolutely determined to combat speculation by increasing regulation on the money markets. He said they would introduce regulations to govern derivatives, make the ratings agencies act in an ethical manner, and speed up work on a crisis management system for the financial industry. He said they would work at national and international level on ensuring the financial industry makes a significant contribution to the cost of dealing with financial crises. He said the Commission would be taking up the ideas set out by France and Germany and Europeans were determined to take the matter to the G20 at its meeting in Toronto in a month's time. Sarkozy said it had been a moment of truth for the eurozone when either the markets would have been left to decide on the fate of the euro instead of the politicians or the politicians would have to take things in hand and demonstrate they could take the necessary measures to block the speculators and solve the crisis in a stronger position than before and more united than before. Sarkozy said that on Friday, they had of course gone for the second option.
In response to questions from reporters, Sarkozy said that the euro couldn't be left at the whim of speculators and for a handful of speculators to make a fortune. The euro is Europe, and Europe is peace on this continent, he said. We cannot let everything that has taken generations to be built up just be destroyed. That is precisely what is at stake, he added, noting that if the politicians do not stabilise the situation, then it is all the other financial centres around the world that would also be hit. Sarkozy said the decisions that had been taken would be put into action immediately and when the markets opened again on Monday morning, Europe would be ready to defend the euro. This is the message we want to send out, he added. Sarkozy rejected rumours on Friday night about disagreement between himself and the German Chancellor, Angela Merkel. He said that Angela Merkel and himself had pulled out the stops to ensure the Franco-German alliance was indestructible and the two politicians share the same analysis - the crisis puts the entire system at risk and any response to the crisis must cover the entire system. He said Angela Merkel and himself had not been divided on anything that evening.
Juncker determined not to let speculators have things their own way
or fly in the face of common sense
The prime minister of Luxembourg, who is the chair of Eurogroup (of eurozone finance ministers), Jean Claude Juncker, said that the eurozone leaders had formally approved an aid package on Friday for Greece, a package that had been facilitated by the vote at the German parliament, the Bundestag and Bundesrat, beforehand. He said the leaders had also decided to make progress in budget consolidation and every effort would be made at national level to accelerate budget consolidation. Juncker said that the European Commission had been asked to unveil a draft European Consolidation Mechanism on Sunday to stabilise the eurozone. We are in a very serious situation, said Juncker, because the entire eurozone is under attack and we have to take action to defend ourselves. He said that on Sunday, they had to be able to say that they were prepared, not just countries in the eurozone but all twenty-seven Member States, to respond to the attacks on the euro. We cannot just let speculators have things their own way and make attacks on the euro that fly in the face of common sense and the real situation on the ground, he added. Juncker said the ECB would also be contributing to the eurozone defence measures, the details of which would be set out on Sunday.
Zapatero: We cannot allow this week's crisis to infringe upon
or nip the green shoots of recovery in the bud
The Spanish prime minister, José Luis Rodríguez Zapatero, said the euro was facing a serious crisis that put the entire eurozone in danger and could spread to other economies, mentioning sharp swings on the markets in Japan and the United States. This serious risk demands a serious, unanimous and strong response, he said. The Spanish prime minister mentioned four aspects of the eurozone leaders' joint statement: speeding up implementation of the budget consolidation measures; presentation by the European Commission of a European Stabilisation Mechanism; support for the ECB's action; and speeding up work to increase eurozone economic governance. He said the crisis this week must not be allowed to infringe upon or nip in the budget the green shoots of economic recovery, particularly in Spain, shoots which are expected to grow further in 2010 and 2011. The right balance therefore has to be struck between support for economic growth and reducing the public deficit by as much as possible in order to achieve the target of returning to the criteria set out in the Stability and Growth Pact by 2013. He said that any new economic measures were the responsibility of the Spanish parliament, which Zapatero would be briefing on Wednesday.
Asked about the European Stabilisation Mechanism, Zapatero said it was a 'guarantee' that the Commission could use where necessary. Thus far, he said, eurozone countries have agreed on bilateral aid for a member of the eurozone, but the new mechanism would be an EU measure. He said it would be for the Commission to issue tangible proposals on how and when the mechanism would come into operation. These proposals would be submitted to the ECOFIN Council and then the Commission would be responsible for implementing any measures decided upon. The Spanish prime minister hoped that the money market would react 'in a reasonable manner' on Monday to the decisions taken by Europe's leaders. (A.B./M.B./H.B./L.C./E.H.)