–No Progress On Increasing Capacity Of EFSF, Eurobonds
BRUSSELS (MNI) – European Union leaders meeting in Brussels on
Thursday agreed unanimously to create a permanent crisis mechanism but
made no progress on increasing the lending capacity of the present
mechanism or using it for other purposes such as buying bonds.
The leaders did not even discuss, at least formally, a recent
proposal to create joint Eurobonds through a European Debt Agency.
Germany strongly opposes the idea, as does France.
Speaking in a press conference at the close of the first day of
their two day summit, European Council President Herman Van Rompuy said
that an agreement had been reached on the main features of the
mechanism, which will replace the European Financial Stability Facility
(EFSF) when it expires in mid-2013.
He said finance ministers would decide details of the mechanism at
their March 2010 meeting. The amendment to the EU treaty required to
create the mechanism would enter into force on Jan. 1 2013 and the
mechanism would be in place by June 2013. All EMU member nations must
ratify the amendment.
The EU leaders agreed on a simplified treaty change process, which
was possible because it concerns only Eurozone members and not the whole
EU, Van Rompuy said.
The amendment consists of two sentences, which will be inserted
into article 136 of the treaty. The sentences are as follows:
“The Member States whose currency is the euro may establish a
stability mechanism to be activated if indispensable to safeguard the
stability of the euro area as a whole. The granting of any required
financial assistance under the mechanism will be made subject to strict
conditionality.”
Van Rompuy elaborated on some details of the permanent mechanism,
telling reporters it would be designed on the basis of the current
mechanism, meaning that IMF involvement is foreseen. “Concerning the
role of the private sector, decisions will be taken on a case by case
basis,” he said — adding later in a written statement that “private
sector involvement will not be a prior requirement for support under the
future Stability Mechanism.” The private sector will also not be a
primary source of financing in future bailouts.
According to Van Rompuy, leaders discussed “neither the lending
capacity nor the flexibility” of the current mechanism. Diplomatic
sources had earlier told Market News that European Central Bank governor
Jean-Claude Trichet, who attended tonight’s dinner with leaders, planned
to raise this issue. Trichet has repeatedly called for urgent measures
to restore confidence in the euro zone, including the possibility of
sovereign bond purchases by the EFSF.
Despite the lack of progress on these shorter-term issues, Van
Rompuy, along with European Commission President Jose Manuel Barroso,
emphasized repeatedly that all EMU member states were nonetheless
committed to the stability of the Eurozone.
“What is in our statement, on which we agreed, is that we will do
whatever is required to ensure the stability of the euro area as a
whole,” Van Rompuy said. Barroso added: “The euro as we have seen it is
a very strong and stable currency.”
Concerning fiscal surveillance, Van Rompuy said that leaders were
unanimous on three elements of their joint strategy to enhance
“structural economic growth in Europe”: ensure fiscal responsibility,
stimulate growth, and implement necessary measures in the countries that
have requested bailouts — namely Ireland and Greece.
Barroso added that now the mechanism was agreed, member states
needed to turn their attention to fiscal consolidation. “These measures
are necessary to put our economy back on track,” he said. He also called
for “structural reform that enhances the growth prospects of Europe”.
Asked about the Portuguese government’s new austerity measures,
unveiled Thursday, Barroso said: “We believe they are very important
measures taken by the Portuguese authorities in terms of a very
ambitious target for next year’s budget.” He added that the measures
were also “courageous.”
The Portuguese government said today it will put new limits on
unemployment benefits and allow temporary reductions in work hours at
troubled companies. The Finance Ministry in Lisbon will also set up
teams to monitor government compliance with its quarterly spending
targets.
Portugal’s budget deficit of 9.6% of GDP last year was the fourth
highest in the Eurozone. The gap is expected to narrow to 7.3% this
year, and the government is targeting a budget shortfall of 4.6% in
2011.
In his written statement, distributed after the press conference,
Van Rompuy said the leaders had expressed their “full support” for the
actions of the European Central bank.
“We support the ECB in its independent responsibility to ensure
price stability, solidly anchored inflation expectations and thereby
contribute to financial stability of the euro area,” he said. “And we
are committed to ensuring the financial independence of the central
banks of the euro system.”
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