Brussels, 28/06/2012 (Agence Europe) - In the afternoon of Thursday 28 June 2012, EU heads of state adopted a Growth Pact with a budget of €120-130 billion, 1% of EU GDP. Once they had dealt with this, the least confidential subject on the agenda, they got down to business on immediate measures to deal with the eurozone sovereign debt crisis and boosting the Economic and Monetary Union (EMU). Reuters reports that Luxembourg's prime minister, Jean-Claude Juncker, will remain at the helm of the Eurogroup.
Arriving at the summit, French President François Hollande said he wanted a Growth Pact with a definite budget not simply as a show but to put into practice - 1% of EU GDP, €120-130 billion, which must be properly, speedily and usefully spent. Unlike the 25-member state Budget Pact, the Growth Pact will not be compulsory. It lists measures like following the European Commission's macroeconomic recommendations and expanding the Single Market. The cash will come from a €10 billion rise in EIB capital, the introduction of project bonds and cash from the Structural Funds. German chancellor Angela Merkel says the action plan will send an important signal, along with the Budget Pact, that robust budgets are needed along with the other side of the coin, growth and jobs.
Emergency measures. None of this will be of any use if countries cannot raise finance, said the Spanish prime minister, Mariano Rajoy, at the EPP Summit earlier in the day (see below), playing down the impact of the Growth Pact. He explained that Spanish institutions were no longer able to raise finance.
The most urgent matter, yet again, is the sovereign debt crisis. Opening the summit, the president of the European Council, Herman Van Rompuy, said: “People in our countries are worried about the present and nervous about the future. They expect us to give a clear message about way forward what we want to achieve and how to get there”. “Italy, Spain, Greece, Cyprus and Portugal have huge problems and if we don't help them, this will have a domino effect on the whole of Europe. We have to take emergency measures,' warned Belgian Prime Minister Elio Di Rupo.
In response to Rajoy's plea, Hollande called for very rapid solutions to help countries finding it more difficult to raise cash from the markets despite making huge efforts to deal with the public purse. If the money markets refuse to fund Spain or Italy, then the eurozone will have no choice but to help these too-big-to-fail countries even though the bailout funds (EFSF and ESM) do not yet have enough cash in them to do so.
Madrid wants the bailout funds to be allowed to lend directly to struggling banks so that the eurozone cash does not deepen national debt levels (making it more expensive to borrow). Raising the stakes, the Italian prime minister, Mario Monti, said that Italy would only back the idea of a financial transactions tax (FTT) if an “anti-spread buffer” were set up. Italy wants the bailout funds to be allowed to buy bonds of struggling countries on the secondary markets. They already have enough money to do so, whereas Spain's request would require changes to the inter-governmental treaties establishing the funds and would therefore require ratification by all 17 eurozone nations.
The Netherlands is calling for any decision to be based on existing mechanisms and come with strict macroeconomic strings attached. Dutch Prime Minister Marc Rutte said that for Italy and Spain, the only solution was to grit their teeth, reform their labour markets, make savings and introduce growth stimulus measures, citing the example of Finland in the 1990's.
EMU. In the meeting of all 27 on Thursday, the leaders discussed boosting the EMU through the ideas set out in Van Rompuy's report recommending, principally for the eurozone, a Banking Union, an Economic Union and a Budgetary Union (see EUROPE 10642). The president of the European Council says that as soon as the tools to strengthen budget and macroeconomic discipline are in place, solidarity mechanisms can be set up in the eurozone, like partial pooling of sovereign debt to bring borrowing costs down. Germany says this order of events is crucial. “As soon as we have a joint EU fiscal policy, we can consider joint liability - the sequencing is key”, said Germany's finance minister, Wolfgang Schäuble. As far as France is concerned, the transfer of power must go hand-in-hand with solidarity. France is prepared to go further in European integration as long as solidarity goes along with it, said François Hollande. Any further integration in the eurozone will be closely monitored by the other member states. Keen to see the eurozone countries “do more things together for their currency”, British Prime Minister David Cameron said he would keep the UK out of joint liability, pointing out that there would have to be a referendum in the UK if any further powers were to be transferred to Brussels. The UK will take action to preserve the Single Market, he said, an important comment if strengthening the EMU takes the form of a Banking Union, the creation of an EU bank supervisory authority (possibly the ECB) and integration of national savings guarantee schemes. (MB/transl.fl)