(Updates with Verhofstadt comments in 16th, 17th paragraphs. For more on Europe’s debt crisis, see EXT4.)
Nov. 16 (Bloomberg) -- European Union President Herman Van Rompuy dismissed U.K. concerns that deeper cooperation among euro-area governments risks creating a “two-tier” EU as he pledged more steps to tackle the debt crisis.
“There has been much exaggerated talk about this,” Van Rompuy told the European Parliament today in Strasbourg, France. “It is time to de-dramatize this debate. After all, it is perfectly natural that those who share a common currency take some decisions together.”
British Prime Minister David Cameron has pressed the 17- nation euro region to involve all EU countries in talks to stem the Greece-triggered debt crisis that threatens the single European currency. The U.K. is one of 10 EU nations outside the euro area.
Tensions erupted in the run-up to debt-crisis meetings of EU leaders in late October, when Cameron said “we must safeguard the interests of countries that want to stay outside the euro.” As a compromise, Van Rompuy hosted a meeting of all 27 EU national leaders on Oct. 26 to discuss bank recapitalization before chairing a euro-area summit that ended the following morning with an agreement on a second Greek rescue including 130 billion euros ($176 billion) in new public aid and 50 percent losses for private holders of Greece’s debt.
“It is in the interest of the non euro-zone EU members that its financial stability is organized and secured,” said Van Rompuy. “A better structured euro area is in everybody’s interest.”
The euro area is seeking to prevent Italy and Spain from being engulfed by debt troubles that forced Greece to seek an initial rescue in April 2010, pushed Ireland and Portugal into aid programs over the following year and led to the new Greek bailout last month. The region has increased surveillance of national budgets, toughened the enforcement of penalties for excessive deficits and debt and expanded the role of a rescue fund known as the European Financial Stability Facility.
Yields on Spanish five-year government securities today reached 5.82 percent, the highest level since before the euro was created in 1999. Bonds issued by euro countries from Finland to Austria slid yesterday, driving up their premiums over benchmark German securities.
U.S. President Barack Obama pressed Europe to act more forcefully to stem the crisis, saying financial markets will remain unsettled until policy makers persuade investors that they will “do what it takes” to ensure the integrity of the euro region.
“We’re going to continue to see the kinds of turmoil that we saw in the markets” yesterday until a concrete plan is put in place, Obama said in a joint news conference in Canberra with Australian Prime Minister Julia Gillard. “I’m deeply concerned, have been deeply concerned -- I suspect will be deeply concerned tomorrow and next week and the week after that.”
Van Rompuy said he was examining further steps to bolster economic-policy coordination in the euro area and would present an interim report in December and final conclusions by next March or June. Some proposals might involve “limited” changes to the EU treaty, he said.
The focus is on “strengthening economic convergence within the euro area, improving fiscal discipline and deepening economic union,” Van Rompuy said. “The task I see for us is clear: we have to bring the economic monetary union to a solid end-state.”
In the EU Parliament debate, European Commission President Jose Barroso said the euro region faced a “truly systemic crisis” and Europe’s partners were justified in demanding a bolder reaction. He said veto powers of individual euro-area governments over common decisions had slowed Europe’s response.
“The markets, the investors are not only looking at the deficits or the levels of debt but also the capacity of the euro area and the European Union to take decisions,” Barroso said. “All levers of action must now be used without delay.”
Barroso repeated that the commission, the EU’s regulatory arm, would present options on Nov. 23 for joint euro-area bond sales opposed by Germany while he signaled that any such step in practice would have to await a deepening of national policy coordination. Barroso has called such common securities “stability bonds.”
“I believe that euro stability bonds will be seen as natural when we achieve our goal of reinforced governance and, of course, discipline and convergence in the euro area,” he said. “There will be a concrete demonstration of the principles of responsibility and solidarity.”
Guy Verhofstadt, leader of the 736-seat EU Parliament’s pro-business Liberal group and a former Belgian prime minister, said joint euro-area debt sales should be a priority.
“Nothing less than full economic and fiscal union including euro bonds will do,” Verhofstadt said. “The euro- zone crisis has reached a very dangerous point. We are now witnessing increasing spreads on interest rates between national sovereign bonds and the benchmark German bund even for countries with a AAA credit rating.”
Luxembourg Prime Minister Jean-Claude Juncker, who took part in the European assembly debate in his other role as head of the group of euro-area finance ministers, expressed “hope” that work on leveraging the 440 billion-euro EFSF will be completed before the end of November.
As part of its Oct. 27 accord, the euro area is examining two options for giving the EFSF as much as 1 trillion euros of spending power. One option is to guarantee a portion of new debt sold by a distressed euro-area government; the other is to create a special investment vehicle that would court outside money.
The question of leveraging the AAA rated EFSF has arisen because of the political hurdles in countries such as Germany to increasing the national guarantees that back the facility. The Luxembourg-based EFSF, established last year to sell bonds to finance loans for distressed euro nations, has since also gained the authority to buy sovereign bonds on the secondary and primary markets, offer credit lines to governments and recapitalize banks as the debt troubles have spread.
In remarks to journalists after the EU Parliament debate, Juncker said making the upgraded EFSF operational was an “urgency.” Juncker also said he believed the EFSF’s chief executive officer, Klaus Regling, has the ability to attract the needed investors.
--With assistance from Chris Anstey in Tokyo. Editors: Jones Hayden, Peter Chapman
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