Brussels, 01/03/2009 (Agence Europe) - At the special European Summit in Brussels on Sunday 1 March 2009, EU heads of state made it clear that they will not give way to protectionist pressures. They all pledged solidarity with other Member States through the principles of the Single Market and not infringing common rules. Respect for EU rules is the duty of all Member States and applies when implementing government economic recovery plans or aid for the car industry or other industries, like dealing with the toxic assets of banks. This solidarity does not, however, mean that there will be a special aid package for Central and Eastern Europe, which has been particularly hard hit by the crisis (see related article), where a case-by-case approach is more appropriate. The heads of state had agreed “that Europe can only face this challenge and overcome the current crisis by continuing to act together in a coordinated manner,” explained the Czech prime minister, Mirek Topolanek, speaking after the summit he had been chairing. Building confidence, promoting financial stability and unblocking credit are crucial for ensuring effective budgetary recovery, added the Czech prime minister, quoting from the meeting's joint press lines.
Building confidence and promoting financial stability. The EU's leaders welcomed the proposals put forward in the report by the High Level Group on Financial Supervision (the Larosiere Group) on improving regulation and supervision of the financial markets (see EUROPE 9848). On Wednesday 4 March 2009, the Commission will unveil its contribution to the spring European Summit in this connection, the first decisions on which must be taken in June after discussion at the ECOFIN Council. The situation on the financial markets remains very fragile, however, and stabilisation will not be possible, not to mention actual recovery, until the problems in the banking industry have been sorted out.
Noting the importance of overall financial stability across the EU after a long debate, the EU's leaders noted that the Member States of Central and Eastern Europe agreed to differ. The leaders noted “with regard to the banking sector, support for parent banks (particularly in the old EU Member States, Ed.) should not imply any restrictions on the activities of subsidiaries in EU host countries” (particularly in Central and Eastern Europe, Ed.). Finance ministers and the European Commission “will keep the situation under active review… and draw up elements to help countries facing temporary imbalances, if required, and on the basis of all available instruments.” The EU's leaders “welcome the recent announcement by the EIB, World Bank and EBRD of a joint initiative to support the banking sectors in the region and to fund lending to businesses hit by the global economic crisis.” Topolanek added: “The prospects for sustainable growth in east Europe are very good.”
Describing the EU27 meeting, Angela Merkel said that all Member States were united in their rejection of protectionism and were persuaded of the importance of the Single Market. She said that solidarity applied in the EU but account had to be taken of the huge diversity of situations from one country to the next, and work with the IMF, the World Bank, the EBRD and the EIB. She added that after the extreme situation currently being experienced, one would have to return to respect of the Stability and Growth Pact (SGP) criteria. Asked about when she thought this would be possible, she said that the SGP itself provided for two years after the end of the crisis and that in her view, this time should start from when growth levels returned to zero. On the Commission's mooted European Economic Recovery Plan, Merkel said it still contained too many provisions that would not take effect in 2009/2010 or which could be funded by the private sector, giving the example of the Nabucco pipeline project which, she said, did not require funding but rather access to gas resources.
Economic recovery requires the Single Market. Examination of national economic recovery plans will take place at the European Summit on 19-20 March. In their interventions, Member States must take advantage of the Single Market, making the most of it as a growth engine to stimulate economic recovery and job creation, agreed the heads of state. They stressed that “protectionism is no answer to the current crisis and express confidence in the Commission's role as Guardian of the Treaty.” Topolanek said that at this stage, he was not aware of any cases of protectionism in the EU. “The communiqué stresses that protectionism is no answer to the current crisis,” said Gordon Brown, the British prime minister, referring to a sentence left out from the initial version of the document.
Ahead of the discussion of the social impact of the crisis at another special summit convened by the Czech Presidency, due to be held in May (where tangible measures and guidelines will be set out), the heads of state stressed the importance of tackling the impact of the crisis on unemployment.
Discussions planned on details of ERM II. “I listened very carefully to Sarkozy. His approach was very close to mine. In this new situation, we need a new response. In a new situation, we should not apply old rules, just old solutions,” said Ferenc Gyurcsany, the prime minister of Hungary, speaking about whether it would be appropriate to remain in the European Exchange Rate Mechanism (ERM II) for two years before being allowed to join the euro (see related article). He noted: “We consider his (Sarkozy) talks as support of our common interest to enlarge the eurozone as fast as possible.” Topolanek added: “There was broad agreement it would be an error to change the rules of the game at the moment”. This approach was broadly backed by Jean-Claude Juncker, who said that at the meeting, he had rejected any idea of reconsidering the Monetary Union membership criteria. He said the euro's stability and the eurozone's credibility depended on the principle whereby joining the euro is based on a system of legal requirements and it is therefore not possible to change the criteria. Juncker admitted, however, that a slight question might be raised about the criterion of having to be a member of the ERM II for two years and this would be discussed in a serious and open fashion. The German Chancellor, Angela Merkel, said that the option of reducing the current duration of ERM II “could be examined.”
Towards an EU system for dealing with toxic assets. Here too, the Member States backed the Commission's guidelines on how banks' toxic assets are to be dealt with (see EUROPE 9848). The President of the European Commission, José Manuel Barroso, said that overall agreement had been reached on a common framework but the final decision would be taken at the next European Summit on 19-20 March.
This not simply a technical issue but also a financial and political question, said the French President, Nicolas Sarkozy. He said that France was not planning to set up bad banks to restore the balance sheets of banks by siphoning off their toxic debt. Every Member State has the option of helping banks, he said, adding that there would be “huge flexibility” in deciding which debts should be deemed toxic, as recommended by the Commission.
Jean-Claude Juncker said that the politicians had discussed toxic assets and thought the Commission's suggestions were a step in the right direction because they are also backed by the European Central Bank. He added that he believed the suggestions were a useful guide for any country facing such problems. The biggest problem, in his view, was not the potential impact of the economic packages launched by the various Member States, but rather the flow of credit (or rather the lack of it). The banking and finance industry is not injecting enough credit into the real economy and the economic recovery packages will not be able to solve the crisis if access to credit is not restored, he warned. Juncker said this meant that toxic assets on the financial markets had to be dealt with the right way.
EU welcomes Commission's suggestions on aid for car industry
In their joint statement, EU heads of state “welcome the communication on the automotive sector by the Commission of 25 February, including in particular enhanced European coordination of schemes for the renewal of car fleets.” They “invite the Commission to ensure rapid and effective mutual information on envisaged national measures and to closely monitor actions taken in third countries, as part of the European framework it has outlined for this sector.”
“We talked about the car industry, but it was not the central issue,” explained the German Chancellor, Angela Merkel, who herself favours further measures to support the car industry, like greater loans from the EIB for new technology, which would, she explained, be an investment for the future and for the environment. Angela Merkel said that the leaders would return to the issue at the main European Summit on 19-20 March (the European Council), intimating that they would have to look at how to make it easier for the car industry to access credit, but also facilitate loans for other sectors of industry. She said that Germany was currently in talks with France over what can be done for the car industry, but aid would have to respect competition rules. The Chancellor does not believe in a strategy which only covers a single industry. On the problems facing German car manufacturer Opel, she said that the German authorities were preparing a rescue package and negotiations would be taking place with General Motors in the United States to this effect. Other bilateral discussions would follow with the other countries concerned, she added, mentioning Belgium, Spain and the United Kingdom.
Jean-Claude Juncker, Luxembourg's prime minister, said he backed Angela Merkel's suggestions about boosting EIB resources to aid the car industry. The French President, Nicolas Sarkozy, said that Germany's ideas were not enough. “We will have to go further in the next few weeks,” he said, adding that he had “never believed in protectionism.”
José Luis Rodríguez Zapatero, Spain's prime minister, said he was absolutely certain that the Spanish €4 billion car industry package met the criteria set by the Commission, because it backed renewal of the industry to make it more competitive and would put the industry in a stronger position to tackle climate change. Zapatero pointed out that no EU leaders had criticised the Spanish package for being protectionist.
The President of the European Commission, José Manuel Barroso, noted (1) the importance of the car industry in terms of both car plants themselves and also the huge number of subcontractors in the supply chain, and (2) the global nature of the car market. Industrial aid as seen in the 1980s, steel quotas, for instance, are not feasible today, explained José Manuel Barroso, calling for over-arching measures like action to make cars greener. Asked about the duration of the French bailout plan (5 years), Barroso said that all the other packages would be assessed in a non-discriminatory manner, including their duration.
On arriving in Brussels, the Swedish prime minister, Fredrik Reinfeldt, criticised public aid for the European car industry; appearing to level his comments at the French and Italian packages. Reinfeldt called for a reduction in production capacity. He said that the EU had the capacity to build 18 million cars a year but demand has slipped to barely 11 or 12 million. He added that this meant the EU's car supply had to be reduced and he thought that should be done in line with the public subsidy rules.
According to reports in AFP, Sweden is also planning an aid package for its car industry to the order of 28 billion Swedish crowns (€2.65 billion) to support its two main car companies, Volvo Cars and Saab, whose parent companies in the US, Ford and General Motors respectively, are struggling. The Swedish package takes the form of investment in R&D, loan guarantees and emergency loans.
On Saturday 28 February 2009, the European Commission announced that it was happy that the guarantees provided by the French government that the French car industry bailout plan would not be protectionist. In a press release, the Commission expressed relief that the government's loan agreements with the car manufacturers would not contain any criteria on the location of car plant or preference for using suppliers located in France. EU Competition Commissioner Neelie Kroes, commented: “This result shows the importance and the usefulness of a dialogue with the Commission at the planning stage of national aid plans. It was important for the Commission to remove all ambiguity in this case, as Europe must avoid a return to protectionism and its negative consequences for employment in Europe. I am particularly vigilant in this respect.” The Commission added that it would be paying special attention to the details of how the bailout package was implemented. (A.B./L.C./O.J.)