Germany and France at odds as euro falls amid market turmoil

Thu, May 24, 2012, 01:00

EU LEADERS sought to advance a new plan to stimulate economic growth as Germany and France laid out opposing strategies to tackle the debt crisis, raising fresh questions about Europe’s ability to overcome the debacle.

At an emergency summit last night in Brussels, the leaders were introduced to the new French president, François Hollande, and Greek caretaker premier Panagiotis Pikrammenos. The talks, still ongoing at midnight, come amid doubt about the place of Greece in the single currency. Renewed market turmoil drove the euro to its lowest level against the dollar for almost two years.

Taoiseach Enda Kenny, attending his tenth European summit, said the Greek situation was a “matter of quite considerable concern”. He also expressed a big interest in suggestions, promoted by Spain, that the European Stability Mechanism fund be given powers to prop up stricken banks directly without the capital required going onto the national debt of the country concerned.

“This would be of interest in Ireland as the first country where the sovereign government borrowed money to recapitalise the banks,” Mr Kenny said.

The EU authorities are worried that Spain will need external aid to rescue its banks but prime minister Mariano Rajoy continues to insist that Madrid will not require a bailout.

Mr Kenny held a brief bilateral meeting with Mr Rajoy yesterday before the summit. “They discussed growth and all the issues surrounding that and the issue of banking in general,” the Taoiseach’s spokesman said.

EU leaders are trying to settle the main elements of a new growth initiative but officials played down expectation of any definitive agreement and said no deal was likely before the next summit at the end of June.

The talks were overshadowed by divisions between the French leader and Chancellor Angela Merkel, highlighting strains in the Franco-German relationship. Although Mr Hollande pressed for the introduction of eurobonds and new powers for the European Central Bank, Dr Merkel issued a blunt rebuttal as she arrived in Brussels.

“I would point to the legal position: the treaties forbid assuming of mutual liability which, in our view, includes eurobonds,” she said. “I do not think they make any contribution to promoting growth ... I will point that out this evening.”

Mr Hollande had urged all leaders to go into the summit in a spirit of goodwill. After pre-summit talks in Paris with Mr Rajoy, he said he would raise proposals including eurobonds and a review of the ECB’s role and that of the European Financial Stability Facility bailout fund. “It’s about thinking of a means of financing that will allow all countries that have made the necessary effort to fix their public finances to gain access to financing at the lowest rates possible, sheltered from speculation or doubt in some markets,” he said.

Other European countries have questioned the wisdom of Mr Hollande’s approach, saying Dr Merkel has no scope to deliver eurobonds. “The chancellor has lost 10 regional elections in a row,” said another EU leader’s adviser.

Greece and a number of European sources denied a Reuters report that euro zone finance ministry officials had been directed to prepare national contingency plans to deal with a Greek exit from the single currency

However, the sources acknowledged that the “euro working group” of officials discussed the possibility in talks last Monday.