EU struggles to keep Eurozone intact, stave off economic collapse
LONDON — With investor confidence draining away and the value of the euro plunging, Europe struggled anew Wednesday to come up with a united game plan to keep its currency union intact and its economies from collapsing.
Competing visions embraced by the continent’s political heavyweights, France and Germany, clashed at an informal summit of European Union leaders with little chance of reconciliation even as fears grew that Greece could be forced out of the Eurozone and into a chaotic default.
While Paris is pushing for Eurozone countries to share some debt and promote growth through stimulus measures, Berlin is holding fast to its prescription of tough public-spending cuts and every nation for itself when it comes to borrowing money.
Early Thursday, EU President Herman Van Rompuy emerged after more than five hours of negotiations with no concrete measures for tackling Europe’s economic crisis, but said that the discussions had been “focused and frank.”
“Tonight’s meeting was about putting pressure, focusing minds and clearing the air,” Van Rompuy said, adding that tangible measures would be hashed out at a formal EU summit late next month.
He stressed that the EU would look at balancing the need for growth with the need for fiscal retrenchment. Pitting one against the other is “a false debate,” Van Rompuy said. “They are two sides of the same coin.”
Still, the summit of European Union leaders in Brussels showed the extent to which France and Germany are becoming two separate poles in terms of how to resolve the region’s financial and economic crisis. The widening gap, sparked by the election of French President Francois Hollande, is in marked contrast to the relatively united front forged between Hollande’s predecessor, Nicolas Sarkozy, and German Chancellor Angela Merkel.
Although investors have welcomed Hollande’s emphasis on fostering economic growth, the lack of a coordinated European response to the ongoing debt crisis and concern over Greece’s future hammered stock markets Wednesday and caused the euro to drop to a two-year low against the dollar.
Hollande vowed Wednesday to push for the introduction of “eurobonds,” or debt collectively backed by all 17 nations that share the euro currency.
The idea of eurobonds has increasingly become a totem for countries such as France, Italy and Spain — the Eurozone’s second-, third- and fourth-largest economies, respectively — which see them as a way to calm investors and tamp down the crisis.
But Germany, the Netherlands and other more fiscally rigorous countries reject the idea because they would almost certainly be forced to pay higher rates to borrow money through the collective bonds than they do now as individual nations.
“We see nothing in eurobonds. It doesn’t foster growth, it will raise our interest rates and it is not the solution to the problem,” said Dutch Prime Minister Mark Rutte, who resigned in April but remained in a caretaker role.
Even if opposing countries were to relent, setting up eurobonds would probably take months, time that the Eurozone may not have to keep the currency union together.
“Nobody was asking for an immediate introduction” of eurobonds, Van Rompuy told reporters after the meeting. “This will take time; it is an end of the process. We have to consider what the legal implications of all this are.”
Still, Spanish Prime Minister Mariano Rajoy, whose country some fear may be next in line for a bailout, appealed to his fellow leaders to produce a solution to help ease borrowing costs for Spain and other ailing European countries.
Casting into sharp relief the difficulties that nations such as his face with their climbing interest rates, Germany easily sold about $6 billion in government bonds at virtually zero interest Wednesday, meaning that buyers were willing to receive no return on their investments just to keep their money in a perceived haven.
“Europe has to come up with an answer. It is a must, because we cannot go on like this for a long time, with large differences when it comes to financing ourselves,” Rajoy said in Paris.
In a sign of Europe’s changed political order, it was Rajoy who met with Hollande in advance of the summit in Brussels, not Merkel. That’s a significant departure from the past, when the German leader and Sarkozy would stake out a common approach before the summit, which often reduced EU meetings to little more than rubber-stamp sessions.
The fissures opening up in Europe compounded the uncertainty gripping investors.
So did the political brinkmanship over Greece’s future in the Eurozone.
Fears that the Mediterranean nation could be forced out of the currency club and into a chaotic default have risen since an inconclusive election this month, which saw the rise of an anti-austerity party dedicated to repudiating Greece’s international bailout agreements.
Germany’s central bank said Wednesday that the negative impact of a Greek exit from the Eurozone would be “considerable but manageable,” offering a pointed riposte to statements by some Greek politicians that Europe wouldn’t dare eject Athens from the currency union for fear of the consequences.
There were also unconfirmed reports that Eurozone officials have told member governments to start preparing contingency plans for a Greek exit.
For his part, Hollande reaffirmed the official line of most Eurozone countries that they prefer for Greece to remain part of the club.
But he disappointed some Greeks by calling on Athens to honor its bailout obligations. Anti-austerity politicians in Greece had counted on Hollande as a powerful new ally in their fight against the punishing cutbacks that their country has imposed in exchange for emergency loans.
“France wants Greece to stay in the Eurozone, and the Greeks must respect their commitments,” Hollande said. “At the same time, the Eurozone must show it supports Greece.”
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