E.U. Attempts New Measures to Reassure Markets
By JAMES KANTER
Copyright by The New York Times
Published: May 9, 2010
http://www.nytimes.com/2010/05/10/business/global/10drachma.html?hp
BRUSSELS — European Union finance ministers on Sunday discussed radically expanding the bloc’s powers to raise revenue to stop troubled members from going bankrupt — the Union’s second attempt in a week to stabilize plummeting markets that threaten the future of the euro.
The emergency meeting, attended by finance ministers from all 27 E.U. states, was called to reach agreement on a so-called European stabilization mechanism ahead of the opening of the financial markets on Monday.
The Spanish finance minister, Elena Salgado, said European Union officials would “do whatever is necessary” to restore stability in the euro zone.
“We are going to defend the euro,” Ms. Salgado told reporters as she arrived for the meeting.
The European Commission, the Union’s executive body, kept details of the stabilization mechanism confidential. But the mechanism could provide a way for member states and possibly the European Central Bank to guarantee funds the commission would raise in the capital markets. The commission would then use those funs to offer loans to states in need, like Greece, in what would amount to a kind of European monetary fund.
At issue in the discussions is whether such loans would be guaranteed by individual member states or by the entire European Union — which would make liable those E.U. countries that do not use the euro, including Britain.
E.U. leaders including President Nicolas Sarkozy of France have said a mechanism should be ready by Monday morning, and could be implemented to quell further market turmoil — not only in Greece and in other struggling euro-zone economies, like Spain and Portugal, but to help stabilize markets worldwide.
The finance ministers gathered in Brussels were, in effect, seeking to change the way the European Union operates in a single weekend.
Stronger economic integration strikes at the heart of issues of national sovereignty that have left the European Union politically fragmented on the 65th anniversary of the end of the Second World War in Europe. That cataclysm led to the creation of pan-European institutions that were meant to ensure peace and prosperity in the region.
The unprecedented series of E.U. meetings was spurred by new signs that Greece might default on its debt, and by growing concerns about the economic stability of Spain and Portugal. A summit of E.U. leaders held just a week ago failed to calm roiling markets, which plunged around the world late last week.
E.U. leaders face a rising tide of criticism for failing to promptly put in place an effective response to Greece’s debt crisis, making the cost of the bailout even steeper. Over the weekend, France continued to lobby hard for the new stabilization mechanism, and for a fresh show of European unity before the markets’ opening on Monday.
“Our attitude is: enough is enough. We have to stop this vicious spiral,” said a senior official, who declined to be identified because the talks were ongoing.
A number of British and German commentators have suggested that the French are seizing an opportunity to expand the power of the European Union at a time when both Britain and Germany are occupied by domestic politics.
While the immediate causes for worry are Greece’s ballooning budget deficit and the risk that other fragile economies like Spain and Portugal might also teeter, the turmoil has exposed deeper fears that government borrowing in bigger nations like Britain, Germany and even the United States is unsustainable.
Efforts to address the crisis took a major leap forward when Chancellor Angela Merkel of Germany and President Nicolas Sarkozy wrote a joint letter on Thursday to the E.U. president, Herman Van Rompuy, and to the European Commission president, José Manuel Barroso, calling for stricter sanctions against member states that break the bloc’s rules designed to protect the stability of the euro.
The European Union’s budget rules were drafted to stop governments from reckless spending that would undermine the broader economy by limiting deficits to 3 percent of gross domestic product.
But big countries like Germany and France have broken those rules without serious consequences.
The letter asked how the European Union could avoid another crisis and “how to preserve the strength, the stability and unity of the Euro area,” but it contained few concrete proposals.
Mrs. Merkel then spoke Friday to President Barack Obama in a sign of how seriously the United States is taking efforts by E.U. leaders to address the crisis.
But how much finance ministers could achieve on Sunday remained murky.
A statement by heads of state early Saturday was couched in language designed to leave little doubt that finance ministers would approve the creation of a stabilization mechanism and put it into action as soon as Sunday evening or Monday morning, if needed.
But it remained unclear Sunday whether Britain and other E.U. members that have not adopted the euro would agree to pledge their assets to support the currency nonetheless.
Arriving in Brussels, Alistair Darling, the British chancellor of the Exchequer, said it was important to stabilize the financial markets, but he said his country would not provide support for the euro.
It also remained unclear whether German authorities would ultimately back away from a stabilization mechanism over fears that it might violate existing E.U. treaties. The Constitutional Court, Germany’s highest court, already has questioned whether parts of the 2007 Lisbon Treaty represent a threat to national sovereignty.
Mrs. Merkel only reluctantly agreed to support the stabilization mechanism on Friday after German officials clashed with their French counterparts over the plan.
There is some precedent for a new loan mechanism: The European Commission already has already borrowed from the financial markets and reloaned the money to help countries including Hungary and Latvia cope with difficulties in their balances of payments. Those loans are guaranteed by the countries receiving them.
European Union diplomats said Sunday afternoon that Britain would be prepared to agree to expand that lending program to €110 billion, from the current level of €50 billion.
At his news conference late Friday, Mr. Sarkozy insisted that none of the measures that had been discussed that day would require a change in current E.U. treaties.
Judy Dempsey contributed reporting from Berlin and Katrin Bennhold from Paris.
Sunday, May 9, 2010
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