Brussels, 28/11/2011 (Agence Europe) - A fortnight ahead of the next European summit, rumours are going around about negotiations behind the scenes to find a solution to the sovereign debt crisis by setting up a budget union among eurozone countries to issue eurobonds for AAA-rated eurozone nations alone. Rumours have also been spreading about Italy and Spain asking for financial aid. On Monday 28 November, the European Commission tried to brush the rumours aside by defending the Community method against any attempts at fragmentation.
Officially at least, Germany is calling for a change in the EU Treaty by the end of next year to introduce a culture of stability within the eurozone, but it is reportedly beginning to realise that this would take too long and the crisis is calling for a decision right now. Also, few partner countries are keen about the idea of a treaty change, although France has made moves in that direction (see EUROPE10501). Last week in Strasbourg, however, emerging from a mini summit of French, German and Italian leaders (see EUROPE 10502), French President Nicolas Sarkozy said that if agreement could not be reached on changing the treaties, then a different solution would be found. France and Germany are reported to be considering a faster solution in the form of an intergovernmental treaty, reported German newspaper Welt am Sonntag on 27 November, along the lines of the Prüm Treaty on issues relating to the Schengen area, some of which have now been added to EU law. France and Germany hope that this would make it easier for the ECB to buy up huge quantities of eurozone nations' bonds on the money markets.
The European Commission does not like the idea of an avantgarde being set up on the budget front, saying it was financial stability across the eurozone that mattered and the Community method was the best way of achieving that, as a spokesperson for EU Commissioner for the Euro Olli Rehn said on Monday. Addressing MEPs, Rehn said last week that the Commission's special vocation was to protect the interests of all member states, protecting the Community acquis (EU rules) and ensuring that any moves to increase EU integration used the Community method.
The press in Germany said at the weekend that some top-rated eurozone countries were considering issuing a joint eurobond among themselves. This was denied on Monday 28 November by the German finance ministry, which issued a press release stating that there were no plans for AAA elite bonds. A spokesperson for EU Commissioner Rehn said there was no place for any plan that would not protect the eurozone, such as a fragmented deal. The spokesperson did not know anything about a request for aid from Italy or Spain. Italian newspaper La Stampa reported on Monday that talks were already underway between the new Italian government and the International Monetary Fund for €600 billion in aid for Italy in return for structural reform and cuts in public spending.
OECD. Unveiling its latest economic forecasts on Monday 28 November, the OECD said: “Decisive policies must be urgently put in place to stop the euro area sovereign debt crisis from spreading and to put weakening global activity back on track, says the OECD's latest Economic Outlook. If not addressed, recent contagion to countries thought to have relatively solid public finances could massively escalate economic disruption. Pressures on bank funding and balance sheets increase the risk of a credit crunch. In the euro area, the risk of contagion needs to be stemmed through a substantial increase in the capacity of the European Financial Stability Fund (Ed: which the Eurogroup will be discussing on Tuesday, see EUROPE 10503) together with a greater ability to call on the European Central Bank's balance sheet. Much greater firepower must be accompanied by governance reforms to offset the risk of moral hazard.” The OECD is expecting feeble growth of 0.2% of GDP in the eurozone in 2012. (MB/transl.fl)