Brussels, 11/03/2011 (Agence Europe) - Eurozone heads of state started their European summit meeting in the afternoon of Friday 11 March to move forwards in their talks on preparing a detailed response to the eurozone sovereign debt crisis for the end of the month. They were asked to put the finishing touches to a “Pact for the Euro”, a political statement in which they pledge to coordinate action to make their economies more competitive (see EUROPE 10333). They discussed a statement of support for eurozone countries embracing unprecedented austerity measures and ever higher debt rollover costs on the money markets. It was hoped that guidelines would be issued ahead of formal decisions about EU bailout mechanisms at the European Council at the end of the month that would make increased solidarity possible from the eurozone's “good guys”.
Portugal. Lisbon has announced new austerity measures to help it reach its target of cutting its public deficit (as a proportion of national GDP) from 4.6% in 2011 to 3% in 2012. Portuguese Finance Minister Fernando Teixeira dos Santos said that as a precautionary measure, consolidation would be reinforced, which would generate an extra 0.8% of GDP this year. The new measures include a reduction in healthcare and welfare spending, taxing retirement pensions from €1,500 a month upwards and delaying investment in infrastructure. It will be made easier to make people redundant and redundancy pay will be cut. The measures are aimed to reassure the markets that Portugal will not need to call for international aid. Welcoming what he described as an “ambitious” initiative, EU Economic and Monetary Affairs Commissioner Olli Rehn commented: “The announced package will help Portugal regain control over debt dynamics and put an end to uncertainties. The commitments of the Portuguese government clear an important building-block of the needed comprehensive response to the sovereign debt crisis, and call for progress concerning the other blocks, notably linked to the reinforcement and increased flexibility of the financial backstops.”
Upon his arrival in Brussels, Greek Prime Minister George Papandreou called for strong EU decisions to calm nerves on the markets, pointing out that Greece has made painful efforts to make its economy viable. Brushing off the idea of any restructuring of Greece's public debt (which stands at nearly 150% of national GDP), he called on Thursday for a longer repayment time and a lower interest rate on the loans granted by the EU and the IMF. This request was echoed by Irish Prime Minister Enda Kenny. Following the downgrading of both Greece and Spain recently by Moody's, Papandreou again called for new measures to be taken to deal with financial ratings agencies. EU Internal Market Commissioner Michel Barnier and Olli Rehn pointed out that they were in the process of preparing a radical overhaul to improve the sovereign debt rating process and end the oligarchy of the Big Three ratings agencies.
“Pact for the Euro”. President of the European Council Herman Van Rompuy and President of the European Commission José Manuel Durão Barroso handed the leaders the third draft of their “Pact for the Euro”, which has been seen by this newsletter. Building on the measures mooted by France and Germany, the pact for the euro focuses on areas of national sovereignty where improvements can be made in economic competitiveness (such as the labour market, pay, retirement pensions and public spending - see EUROPE 10327). The measures set out are not compulsory but are highly recommended. Encouraged to ensure pay restraint, the eurozone countries will need to ensure that pay rises do not outstrip increases in productivity and will need to fully respect social dialogue traditions in their own country. They will also need to ensure that the retirement age rises in line with life expectancy. In order to ensure that their public finances are sustainable, they must introduce legal measures to restrict the government's ability to get into debt. A controversial paragraph on taxation states that tax is a matter over which the member states have control but mentions harmonisation of the way company tax is calculated as a way of ensuring greater “coherence” among member states' tax systems.
The pact for the euro is now clearly a European pact. The member states will set out their commitments in national reform programmes to be published at the same time as their annual stability and growth programmes (in the second fortnight of April). The pact stipulates that the European Commission will have a key role in ensuring that the commitments are met and the agreement will be open to non-euro countries. Polish Prime Minister Donald Tusk said that Poland was not the only non-euro country prepared to join the pact for the euro.
Talking about the draft EU legislation to boost economic governance in Europe (see related article), Italian Prime Minister Silvio Berlusconi said that Italy was prepared to agree to excess public debt (over 60% of GDP) to be subject to a plan to reduce it by 5% a year after 2015 as long as private savings are taken into account when calculating the size of a country's debt. (M.B./transl.fl)