Brussels, 23/05/2012 (Agence Europe) - Although the most recent summit suggested some kind of reprieve in the sovereign debt crisis in the eurozone, EU27 countries began yet another meeting early on Wednesday evening 23 May, to a backdrop of financial turbulence and the need for urgent action.
Greece will hold new elections on Sunday 17 March. On a daily basis the economic and political crisis in the country strengthens the hand of the political parties opposed to the austerity programme, even if the European Commission is refusing to envisage any possible renegotiation of the Greek memorandum. The other 16 countries in the eurozone have been asked to prepare emergency national plans in the event of Greece leaving the eurozone, affirmed Reuters on Wednesday. The Commission is refusing to entertain any other possible scenario other than that which is on the table. In addition to the contagion effects of Greek problems on Spain's ability to obtain finance on the markets, the Spanish banking sector has plunged by almost €200 billion in toxic property assets and is continuing to be a cause of concern, together with accompanying fears of the need for a European rescue intervention plan. Nonetheless, the Spanish prime minister, Mariano Rajoy, again rejected this hypothesis on Wednesday at the end of his meeting with the French president, François Hollande.
Far from ignoring these urgent issues, European leaders will outline the contours of a European agenda for growth to be decided upon in June. The Danish prime minister, Helle Thorning-Schmidt, promised: “We will use the last part of our Presidency to create the foundation for an ambitious growth pact at the June European Council.” It remains to be seen how this agenda, called for by France, will fit legally with the ongoing ratification of the fiscal compact. The EU27 will also hold a discussion, which the president of the European Council, Herman Van Rompuy, hopes will be no-holds-barred on how to consolidate economic and monetary union (see EUROPE 10617).
Yes to growth, but what sort? As emphasised by Rajoy last weekend in the US, nobody is against economic growth. Without growth, it will be impossible for states to pay back their debts. There is, however, still a need to agree on how this objective can be reached. The European Commission, Germany and the ECB constantly insist on the continuation of “structural reforms”, including economic liberalisation and increased labour market flexibility. This vision has been rejected by European trade unions, which fear that this European growth agenda is threatening social benefits.
During the summit, the aim of European leaders will be to better understand how the others are positioned on all the different subjects raised, confirmed one diplomatic source. At this first post-Sarkozy summit, different points of convergence will be dissected, as well as the disagreement within the Franco-German couple. Ahead of the forthcoming general election in France, Hollande will attempt to win ground on pursuing growth friendly measures to counter-balance the effects of the fiscal compact. He considers that “everything should be put on the table”. Given a difficult domestic situation following losses in regional elections, the German chancellor, Angela Merkel, will oppose economic recovery that runs counter to the austerity treatment imposed on the eurozone. Nonetheless, with an eye on the 2013 elections and thanks to the country's good economic health, the German authorities can approve significant wage rises, as well as inflation, which is above the eurozone average. Overall, countries in the north of Europe are on the same wavelength as Germany. The Dutch prime minister, Marc Rutte, said: “The hard truth is that there are no magic solutions to solving this crisis. We will all have to keep our spending in check, pay off our debts and swiftly introduce healthy reforms.”
Letter from the Twelve. European leaders had already sketched out in March the contours of a European growth agenda, largely based on the letter from the 12 countries and drafted on the initiative of Italy and the United Kingdom but without any contribution from Germany and France (see EUROPE 10566).
Deepening the internal market is a core element of the decisions to be taken in June. Initiatives are expected in the field of services, particularly e-commerce, in order to facilitate companies' access to finance and to reduce the administrative burden on them. Recognition of professional qualifications is also expected to be facilitated and the mobility of workers encouraged. Proposals are also expected on single market governance and the appropriate EP committee has just put forward the idea in this connection for simplified procedures on infringements to Community law. European leaders require an agreement by the end of June on the European patent (see other article) and the energy efficiency directive. They will definitely welcome the agreement obtained on Tuesday on the project bond pilot phase (see other article). Finally, on the question of taxation, they will call for progress to be made on the harmonisation of corporate tax and the tax on financial transactions (see other article).
Other possibilities seem to be on track with a view to obtaining a decision this June. This is the case with the €10 billion increase in capital from the EIB, as a means of mobilising almost €200 billion from private funds for investment in major infrastructure projects. The same goes for optimising the €80 billion in structural funds, which could be further focused on providing funding for SMEs and job creation. In this context, European leaders will discuss the multiannual financial framework for the 2014-2020 period, which promises to be a bitter battle on what budgetary envelope should be made available and how it should be allocated.
Several controversial subjects. Each member of the European Council will be invited to take a position on more ambitious measures to respond to the debt crisis, particularly by way of deepening European construction.
Openly supported by the Commission and Italy, France is seeking to put on the table the question of the pooling of part of the eurozone sovereign debt, by creating an extensive eurobonds market (see EUROPE 10617). So far, this measure constitutes a red line for Germany and the country is against any let-up in budgetary discipline for countries experiencing difficulty and which benefit from its “protection”, as well as an increase in its borrowing costs, which currently stand at almost nothing. On Tuesday, the Austrian finance minister, Maria Fekter, quoted by Bloomberg said: “I'm not willing that Austria should potentially pay twice as high interest as we currently do…As long as fiscal discipline of the euro nations isn't completely complied with (…) as long as there is no direct influence on how the states run their finances and which fiscal measures they set, I won't sacrifice the Austrian credit rating.”
One immediate possibility for relieving countries experiencing budgetary difficulties due to the recession will consist of making the excessive public deficit reduction trajectory more flexible. According to Les Échos, Paris considers that the budgetary efforts made by eurozone countries that are experiencing structural trends generated by the economic situation should be taken into account and not just current data. This measure is part of the fiscal compact and identified in the recent G8 declaration (see EUROPE 10617). The Commission is eager to prevent the credibility of the revised Stability Pact coming into doubt and the Commission does not intend to discuss any further flexibility in the way these rules are applied. It emphasises that differentiation between countries and circumstances is possible. On Wednesday, it will inform European leaders about its preliminary recommendations on national stability programmes and reform programmes, which will officially be presented at the end of May. Countries experiencing difficulties say that they will respect their budgetary commitments. In scarcely veiled terms, however, Spain is insisting on immediate and concrete assistance from the ECB to support member states in their refinancing operations. Italy is appealing for differentiation in the auditing of its investment expenditure.
ESM. Another controversial subject includes the modification of the European Stability Mechanism (ESM). Discussions are currently being held on the possibility of granting a permanent rescue fund the opportunity to directly support the banking sector in a given country and no longer through the member state concerned, in exchange for a drastic adjustment programme. This hypothesis, and that of granting the ESM unlimited access to ECB liquidity, constitute red lines that Germany will not allow to be crossed. (MB/transl.fl)