By Alina Trabattoni
ROME (MNI) – Leaders of the four largest Eurozone economies agreed
on the need to push through a growth package for the 17-nation bloc
worth 130 billion euros, or 1% of euro area gross domestic product, at
their upcoming summit meeting June 28-29, they said at a joint press
conference here.
Italian Prime Minister Mario Monti, who spoke first, said the four
leaders also agreed that the single currency project was “irreversible.”
Even so, a well-known divergence of views was in evidence as German
Chancellor Angela Merkel publicly turned down a plan championed by the
French, Spanish and Italian leaders to use European bailout funds to
purchase sovereign debt and curb soaring bond yields in Spain and Italy.
Their proposal, not a new one, was floated again last week as
uncertainty and high tension continued to grip financial markets,
torturing Madrid and Rome with sharply rising sovereign borrowing costs.
But Germany has insisted that if the bailout fund is to buy sovereign
debt, it can only be within the context of a formal country program with
policy conditions attached.
“Each country wants to help another country that is in trouble, but
for the taxpayers, I must have the guarantee that there is control,”
Merkel said here. “Responsibility and control go hand in hand.”
Today’s four-way summit, hosted by Monti, follows closely on the
heels of the Eurozone finance ministers’ meeting on Thursday night in
Luxembourg, at which they discussed a plan to provide up to E100 billion
worth of recapitalization aid to Spanish banks.
At next week’s summit, EU leaders are expected to discuss long-term
plans for a fiscal and banking union.
“What has been done to date is not enough,” Monti said. “On June
28, we will introduce growth, employment and single market initiatives.”
In a report issued on Thursday, the International Monetary Fund
said the euro crisis had reached a “critical stage,” and it urged
leaders to make a “strong commitment” to solve the underlying issues
that are eroding confidence in the region.
One of the solutions could be the issuance of common debt, the
report said. The IMF also called for a banking union and increased
fiscal integration.
So far, European leaders have failed to produce durable solutions
to the sovereign debt and banking crisis that is enveloping the region
and undermining its economic growth.
Germany’s IFO business sentiment declined in June for the second
month in a row to the lowest level in more than two years, according to
data released today. Italian consumer confidence also dropped to a
record low this month. Earlier this week, preliminary purchasing manager
(PMI) reports for June showed the Eurozone economy is still in retreat,
with worrying weakness in Germany’s manufacturing sector.
“After we have intensively dealt with budget consolidation in the
form of the fiscal pact we have to deal with growth and employment,”
Merkel said. “It is now necessary for the next summit to set a clear
mark and I absolutely agree on the use of 1% of the GDP of the [euro]
area for additional growth. That is the right signal that we need.”
Monti is battling to keep Italy from becoming the next victim of
the euro crisis, with the nation thrust back into the debt crisis
debacle despite a E35 billion austerity package introduced earlier this
year.
The prime minister, appointed together with a technocrat government
last November to replace the outgoing Silvio Berlusconi and his cabinet,
has so far failed to muster market confidence in his ability to slash
Italy’s massive public debt — at 120% of GDP, the second largest in the
Eurozone — or to limit the contagion effects of the Spanish banking
crisis and the chaos in Greece, which are feeding through into Italian
borrowing costs.
Spanish yields, which flirted with dangerously high levels above 7%
earlier this week, have eased considerably to around 6.5% today. The
lower yield is largely a result of market reassurance after two Spanish
auctions garnered healthy demand this week, and a response to news that
the European Central Bank was planning to ease collateral rules on
mortgage-backed assets, which will be of particular benefit to Spanish
banks. The ECB officially announced the collateral changes Friday
afternoon.
Italy’s 10-year yield, largely coupled with Spain’s of late, has
also eased from a high of 6.2% on June 14 to around 5.65% today.
Markets have been increasingly nervous about waning public
confidence in Italy’s Prime Minister Mario Monti, his seeming inability
to implement some of the larger structural reforms, and the potential
for early elections, hinted at by political leaders in the coalition
that supports his government – most recently by Silvio Berlusconi, who
strongly suggested in a recent interview that he was displeased with
some of Monti’s policies.
In fact, today’s meeting comes in the wake of mounting concern on
international markets that Italy, the Eurozone’s third largest economy,
may suffer a fate similar to Spain’s, Greece’s, Portugal’s and
Ireland’s. Italy is the Eurozone’s third-largest economy and the second
biggest manufacturer, after Germany, and the recent spike in its
borrowing costs has heightened pressure on European leaders to introduce
concrete measures to combat the crisis.
Spanish Prime Minister Mariano Rajoy, who also attended the press
conference, said the four leaders had agreed on the need for measures to
reduce deficits and debt, as well as for plans to boost growth and
competitiveness. He called for structural reforms, as well as for a
banking, fiscal and cultural union.
“Today we have all agreed to use mechanisms that can be conducive
to greater integration,” Rajoy said. “The rest of the world understands
where we are heading.”
Meanwhile, Greece’s new government said this week it would seek a
softening of the EU bailout terms the country has accepted. Prime
Minister Antonis Samaras declared his intention to do everything
possible to keep Greece in the Eurozone.
Samaras was appointed earlier this week following the
closely-watched June 17 elections, which in effect were seen as a
referendum on Greece’s euro membership. While Samaras’ conservative New
Democracy party received the most support of all the parties vying in
the elections, it didn’t secure a majority of the seats in parliament
and was forced to form a coalition with the Socialist (Pasok) Party, its
old nemesis, and with the smaller Democratic Left party.
The support that Monti’s proposal has received from Spain and
France reflects shifting alliances within Europe. Prior to Hollande’s
recent election, Merkel usually could count on the support – at least in
public – of now-former President Nicolas Sarkozy.
“We need to move closer together politically, especially in the
euro area,” Merkel said. “If you have a joint currency you also need to
make coherent policies, and we will work jointly…towards a stronger
political union.”
The German Chancellor added: “I’m happy that all four of us could
say today that they support the introduction of a financial transaction
tax.”
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