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German Chancellor Angela Merkel parried attempts to get her to accept more flexibility for the euro-region’s rescue funds, while agreeing with leaders of Italy, Spain and France on an outline to spur economic growth.
At a four-way summit meeting in Rome yesterday, Merkel, Italian Prime Minister Mario Monti, French President Francois Hollande and Spanish Prime Minister Mariano Rajoy said they would lobby their European Union partners to accept a growth plan of as much as 130 billion euros ($163 billion), or about 1 percent of the euro-region’s economic output.
With pressure mounting on Merkel to relent on her rejection of additional joint debt burdens, European leaders are looking to focus on growth as a way out of a sovereign debt crisis now in its third year. They are racing to come up with a plan to salvage the monetary union by a summit in Brussels next week, the fourth such make-or-break meeting this year, as concerns over Spain’s banks and flagging growth across the bloc shake investor confidence.
“We want to make clear that we’re going to do everything to fight for the euro,” Merkel told reporters at the Villa Madama in Rome. “We need to approach the issues of growth and employment for people more strongly after having already intensively pursued the issue of consolidation.”
In an interview yesterday with a group of European newspapers including Le Monde and El Pais, Monti said the weeklong run up to the summit may prove critical to the survival of the euro. Should leaders fail to produce a blueprint for a tighter fiscal and financial union, there will be “progressively greater speculative attacks” on the currency bloc’s “weaker” nations.
Prior to the meeting, Monti had put forth his own proposal for a banking union, including a European supervisor and a deposit guarantee fund. He also pressed for nations to give up some autonomy over their budgets, calling for a mechanism to help bring down borrowing costs for nations that are meeting their fiscal goals. Monti also stands with Hollande in favoring euro-area countries collectively selling debt.
There was little sign at the four-way press conference that Merkel backed a more flexible use of the existing bailout mechanism. Asked why she opposed the euro bailout fund directly recapitalizing Spanish banks, the German leader repeated that “liabilities and controls go together.”
Merkel said she can’t support German taxpayer money being channeled directly to a Spanish bank “because I have no powers” of oversight. “I’m the German chancellor; I can tell my banks that. You would have a huge problem here,” she said.
Hollande, who supports jointly issued euro bonds, said that in “10 years, when there will be a union, an integration, euro bonds will be a useful instrument for Europe.” Merkel opposes the proposal.
Earlier in the week, Merkel also balked at supporting a proposal to use the bloc’s bailout fund to ease rising borrowing costs by buying bonds of indebted countries. After Monti and Hollande signaled their support for such a measure at a Group of 20 summit, Merkel said it “was not up for debate.”
That left yesterday’s agreement to flesh out a plan to spur growth in the euro area, which the European Commission expects to shrink 0.3 percent this year as six of its 17 members contract. Growth “has become a priority,” Hollande said.
European leaders have been supportive of boosting funds for the European Investment Bank and financing for regional infrastructure. The four leaders didn’t give specifics about the growth plan or how it would be financed.
“The package has a ’shuffling of the deck chairs’ feel to it,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mail.
The four leaders did reach an agreement on moving forward with a financial-transaction tax that could be used to fund future bank rescues. Merkel, who has supported the tax, though only on a wider European level, ceded ground on the issue after Germany’s Social Democratic-led opposition demanded the tax in exchange for their support for the permanent bailout fund and the euro’s fiscal pact in parliament next week.
Rajoy, who on June 9 said his government would request a much as 100 billion euros in aid for its ailing banks, said he was pleased with the outcome in Rome because the leaders agreed to “put into place all the mechanisms necessary to achieve financial stability in the EU.” Rajoy didn’t give any details.
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