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France, Germany in EU summit showdown

Agence France-Presse
French President Francois Hollande calls for eurobonds, a jointly pooed eurozone debt

BRUSSELS, Belgium – France and Germany crossed swords Wednesday, May 23, over how to spur growth in the debt-stricken eurozone at an EU summit tinged by plunging markets and the euro hitting a near two-year low.

“We have to act straight away for growth,” French President Francois Hollande insisted amid deepening worries over Greece’s eurozone future and Spain’s troubled banks. “Otherwise there will still be doubt on the markets.”

“We have no time to waste,” the freshly elected Socialist leader stressed at his first EU summit after a cost-conscious train ride from Paris.

German Chancellor Angela Merkel faced pressure to give ground on her hardline austerity doctrine as the European single currency fell to US$1.2564 and London, Frankfurt and Paris stock exchanges each shed well over 2%.

However, she rejected a call by Hollande for eurobonds — jointly pooled eurozone debt — on the grounds they are “not a contribution to stimulating growth in the eurozone” and adding that such instruments ran contrary to EU treaties.

Berlin fears eurobonds would only result in German taxpayers permanently underwriting the public finances of weaker eurozone economies.

In a German press interview appearing on Thursday, Merkel’s finance minister Wolfgang Schaeuble maintained that “the differences between ourselves and France are not so great.”

Floating ideas

Schaeuble said Hollande wants more done to kickstart growth, but insisted that the French president “does not want to water down” a treaty obliging balanced budgets the Frenchman initially said he wanted to re-negotiate.

“We’re not talking about an easing of budgetary discipline,” Schaeuble insisted.

A member of Hollande’s entourage said he was “floating ideas” but “not coming to Brussels with a Kalashnikov.”

Non-euro Britain also flexed muscles, ruling out in advance other core ideas put forward by European Union officials and backed by Hollande — including a tax on financial transactions.

Home to three quarters of Europe’s financial services industry, London vehemently rejects the tax.

Opening the dinner talks, EU president Herman Van Rompuy underlined the need to find “a strong will to compromise” with the risk of knock-on effects from a Greek eurozone exit exercising markets.

After Germany’s central bank said the picture in Athens ahead of June 17 elections was “highly alarming,” leaders were expected to remind Greek voters that they expect Athens to honour a 237-billion-euro ($300 billion) bailout deal agreed in March.

“I don’t believe we can afford to allow this issue to be endlessly fudged or put off,” said British Prime Minister David Cameron, notably urging the European Central Bank (ECB) to do more.

Treasury officials from the other 16 eurozone member states were told this week to “reflect” on what an exit would mean for their economies, a diplomat from one eurozone country told AFP.

Spain’s case

The Greek finance ministry in Athens “categorically” denied this was the case.

Contingency planning that diplomats called “commonsense” stems from arguably greater worries about Spain and Italy, after a report by Fitch Rating agency showed foreign investors had fled Spanish and Italian debt in huge numbers.

Spanish Prime Minister Mariano Rajoy said Spain did not require the support of European rescue funds, saying there were “faster instruments” — an apparent allusion to the ECB which has previously bought government bonds in sell-on markets.

Analysts see this as inevitable, with consultant Sony Kapoor warning that Spain otherwise “is headed toward needing a fully-fledged bailout.”

Wednesday’s talks were set to endorse a trial for 230 million euros in seed money from the EU’s budget this year and next by way of EU “project bonds.”

This is intended to attract 4.5 billion euros of long-term private investment for Europe’s incomplete energy, transport and digital networks.

Other ideas on the table included a 10-billion-euro boost to European Investment Bank (EIB). – Agence France-Presse

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