Germany and France at odds ahead of summit
EU leaders to hold summit next week with Germany still refusing to support Eurobonds.
Eurozone seeks IMF support
Protecting banks
France and Germany are struggling to resolve their differences on how to tackle the turmoil in the eurozone and the future of the European Union as the sovereign-debt and banking crisis escalates.
Politicians and officials are involved in a hectic series of meetings that may end up determining the shape of the EU for years to come as countries’ spiralling borrowing costs, record unemployment figures and ominous economic forecasts all contribute to the sense of unease.
The contentious issue of treaty change is dominating the debate, with Germany continuing to demand that the EU should be reformed so that it can conduct ruthless scrutiny of eurozone member states’ budgets, with penalties for rule-breakers ranging from automatic fines to suspension of voting rights and even court action.
Nicolas Sarkozy, the president of France, which has long been sceptical of Germany’s insistence on greater fiscal integration, is to announce today (1 December) his plans to resolve the difficulties. Despite an electorate hostile to handing over sovereignty on budgets, Sarkozy attempted to show a united front with Angela Merkel, the chancellor of Germany, last week (24 November) by publicly supporting “modifications of treaties”.
How much he can extract in return will be crucial. Sarkozy, along with the European Commission, has been pushing for the creation of shared Eurobonds, and this was discussed by the EU’s 27 finance ministers in Brussels yesterday, but Germany is still refusing to support the idea.
Germany has also refused to allow the European Central Bank (ECB) to act as a lender of last resort. But options are running out after tacit acknowledgment by the eurozone’s 17 finance ministers on Tuesday night (29 November) that the European Financial Stability Facility (EFSF) is unlikely to meet its €1 trillion enlargement target.
Treaty change
The question remains whether financial markets will wait until the summit of the EU’s 27 leaders on 8-9 December, let alone for the drawn-out process of treaty change – even if that is agreed. In a sign of the deteriorating situation, the ECB, along with the central banks of the US, UK, Japan, Switzerland and Canada, were yesterday forced to agree emergency measures to improve banks’ access to funding. They agreed to cut the amount that banks pay to obtain US dollars in response to banks’ increasing difficulty in acquiring credit.
Italy’s borrowing costs reached record levels again this week despite its new government of technocrats pledging to implement austerity measures agreed with the Commission. Yesterday, figures showed unemployment in the eurozone at its highest level since the creation of the single currency.
Leaders of eurozone member states have been at pains to underline the independence of the ECB over the past few days, indicating that they believe it may be ready to increase its bond-buying activity with the aim of lowering countries’ borrowing costs.
Pressure has grown on Germany to take a softer position on the role of the ECB as lender of last resort or the creation of Eurobonds, with Radoslaw Sikorski, Poland’s foreign minister, calling on Monday (28 November) for Germany to end its “inactivity”. He said in a speech in Berlin that “the biggest threat to the security and prosperity of Poland would be the collapse of the eurozone”, and he issued a “demand” that Germany, should help it survive and prosper – “for your own sake and ours”.
Herman Van Rompuy, the president of the European Council, will present a report on limited treaty change to the summit next week, and is likely to repeat his warnings that treaty-change is not a panacea.
“It is about discipline and integration… and about short-term actions and long-term reforms,” he said yesterday. “Regardless of whether there will be treaty change or not, both entail a sacrifice of sovereignty in exchange for providing the economic and monetary union with a structural credibility.”
Guy Verhofstadt, leader of the Alliance of Liberals and Democrats for Europe (ALDE) group in the European Parliament, warned that the eurozone was facing disintegration if EU leaders did not move fast to come up with viable solutions.
“We are fast approaching the breaking point of the euro,” he said yesterday. “Let’s be blunt about this. It is not because of Greece or Italy; it is because of the incapacity of the two main players today in European politics, of Merkel and of Sarkozy, to deal with this crisis.”