Brussels, 27/06/2012 (Agence Europe) - Crisis as usual. Europe's leaders will be meeting in Brussels on Thursday and Friday to discuss the crisis in Spain due to the cost of the latest bank bailout and high interest rates, the hikes in refinancing costs for Italy and Spain and the formal requests for aid from Spain and Cyprus. They will be considering how to solve the debt crisis in the eurozone and laying the foundations for a stronger economic and monetary union (EMU) in the medium-term.
Before dinner, the EU27 will be examining the upcoming multi-year EU budget (see separate article). In the summit invitation letter, the president of the European Council, Herman Van Rompuy, called for countries to speak for no longer than two or three minutes each and to focus on how the EU budget can be used to stimulate growth, aligning it more with the EUROPE 2020 Strategy.
The leaders will move on to adopt the new stability and growth pact, as demanded by France since François Hollande came to power in May. Contrary to his election promises, the growth stimulus action plan has no legal connection with the 25-member state fiscal compact symbolising the belt-tightening demanded by Germany. It calls for implementation of the European Commission's macroeconomic recommendations and expansion of the single market by focusing on services and the digital agenda. In terms of funding, 1% of EU GDP (€120-130bn) has been announced which is a total of the cash earmarked to fund big infrastructure projects through the €10bn increase in EIB funding, along with project bonds and a re-programming of EU structural funds.
Sovereign debt crisis. Europe's leaders will have to get their teeth into the sovereign debt crisis. The eurozone is torn between struggling countries calling for immediate aid to limit the damage and budget surplus countries calling for long-term action whereby countries give up sovereignty in return for solidarity. The future of the euro hangs on short and long-term decisions, said the president of the European Commission, José Manuel Barroso, on Wednesday 27 June, after a meeting with the president of the European Parliament, Martin Schulz, on defending the Community method.
The Spanish prime minister, Mariano Rajoy, says the most urgent subject is how to roll over public debt. Despite a promise of up to €100bn of aid by the Eurogroup to bail out Spanish banks, the risk premium on Spanish bonds is still rising. Madrid is fighting for a change in the way the eurozone bailout funds operate so that their loans can be fed straight to banks rather than boosting national debt. Prepared to stay over in Brussels until Sunday to get everything thrashed out, if necessary, the Italian prime minister, Mario Monti, says that the bailout funds could buy up bonds from countries whose borrowing costs are excessive because they are introducing reforms but have good economic fundamentals. France hopes the European stability mechanism will get unlimited access to ECB cash. France and Italy's ideas are beyond the pale for Germany, but it might go along with Spain's request.
EMU. In addition to emergency matters, the leaders will discuss boosting EMU in the medium-term, based on a report published by Van Rompuy on Tuesday (see EUROPE 10642). This will be discussed by the EU27 over dinner on Thursday and by the eurozone leaders at the summit on Friday.
Addressing the Bundestag on Wednesday and preparing for a conflictual summit, the German chancellor, Angela Merkel, called for affordable solutions to the eurozone's structural problems, before heading off for a meeting with François Hollande at the Élysée in Paris. Germany is calling for Brussels to get greater powers over member states' economies and budgets. Germany is the biggest eurozone economy and is refusing to give any more cash to bail out a country or a foreign bank unless it gets scrutiny over the country's budget and the bank's business. Berlin says changes to the EMU must be made in the following order. Firstly, greater controls then, possibly, greater solidarity. Merkel told the Bundestag that it would be counterproductive and contrary to the German constitution to introduce eurobonds, eurobills or a redemption fund. Other countries disagree with this order of events. In Rome last week, Hollande warned that there would be no transfer of prerogatives to Europe without extra solidarity and the Commission agrees with France that solidarity and belt-tightening must go together.
Herman Van Rompuy said his report was a discussion document which might be adopted by the summit on Friday but he expected a common position to be reached on how to increase EMU. The question of a European bank supervision system with a single bank authority and common crisis-management and savings guarantee systems seems to be a matter of conflict between the eurozone and the United Kingdom, which will defend the interests of the City of London tooth and nail. It remains to be seen whether the idea would cover all banks or only the big ones and whether the ECB would be the single European supervisor, as recommended by Germany and France. Another big EMU issue is public support for being frog-marched into greater integration in these times of crisis. (MB/transl.fl)