Growth on agenda as all board the bandwagon in Brussels

Fri, May 25, 2012, 01:00

With continued Greek uncertainty there was an air of unreality at the end of EU summit No 18, writes DEREK SCALLY

IT WAS 1.20am yesterday morning when a scowling Angela Merkel strolled into the half-empty German briefing room in Brussels. Not a press conference, her handlers insisted, just a short statement.

Hands clasped chastely before her, Merkel gave a brisk report on a “sensible” informal meeting of EU leaders, with “widespread agreement” on the need to balance austerity and growth.

After her statement, in an uncertain moment of silence, a muffled voice could be heard through the partition wall. François Hollande was in full flight.

The French president used his Brussels debut dinner – asparagus, John Dory fish, chocolate pudding – to revive the idea of lowering borrowing costs for struggling member states by mutualising euro zone debt.

“François Hollande presented his position as promised,” remarked Merkel drily, when asked. She responded by listing two objections to so-called eurobonds. One is legal – existing EU treaties forbid such a move – while the other is political.

“I said that [for eurobonds] we need greater economic co-ordination in the euro zone,” she said.

The German leader was gone after just five minutes, not even trying to compete with the show next door. On a stage before a blue screen, Hollande took questions from a capacity crowd until long after Angela Merkel had left Belgian air space.

“It’s true there is a difference [on eurobonds],” he said. “Germany’s line of thinking is, to give the most optimistic version, that eurobonds could only be an end point, whereas for us they are a starting point.”

For the French Socialist, the eurobonds discussion was a useful means to establish his independent, centre-left credentials with EU partners. Ahead of next month’s parliamentary elections, it sent the message to voters: I am my own man, not the rear end of a Franco-German pantomime horse. His post-summit performance fell short of the Sarkozy zing, but it was an energetic contrast to Angela Merkel’s sombre performance. But, as so often after Brussels summits, fleeting impressions had vanished in the morning light.

Officials who attended the talks say Hollande’s crisis-weary colleagues listened politely to his eurobonds arguments. Belgium and Luxembourg support the idea, Taoiseach Enda Kenny said afterwards it would be “fair to explore” what eurobonds would involve.

Angela Merkel was pleased to see her anti-eurobond front holding – from the Netherlands, Nordics and Baltic countries right down to Romania and Bulgaria. Germany argues that pooling sovereign debt would create a new source of cheap credit for crisis countries, reducing their incentive to reform while increasing borrowing costs for others.

“Eurobonds would just institutionalise the problem we’re trying to solve,” said Jyrki Katainen, Finnish prime minister.

The German leader had the crucial support, too, of ECB president Mario Draghi, who echoed her remark that eurobonds only made sense after a move to closer common fiscal union. On his way home Draghi said leaders had made a “commitment” at the informal meeting to move European monetary union (EMU) to “new stages”.

“That is the best answer to what is going to be happening in the medium term,” he said.

Draghi refused to be drawn on another focus of discussion: rewriting the rules of the upcoming European Stability Mechanism (ESM) bailout fund to allow direct lending to cash-strappd banks.

Mounting concerns over Spain’s financial sector have seen Madrid lobby for an ESM rule change allowing funding to go straight to banks. That would bypass the need for an official state bailout and keep the required capital off the country’s national debt.

Draghi said only that the ESM should “be a functioning firewall”; his officials dub the ESM a “wait-and-see” issue for Frankfurt.

German officials are steadfastly opposed to any changes to allow direct funding. Obligatory state involvement, anchored in the ESM treaty, ensures state guarantees on all ESM loans. But even ECB sources concede that treaties can be adapted to changed circumstances and new economic realities.

“The ESM issue is primarily a political process which the bank cannot influence,” said an ECB official yesterday.

Taoiseach Enda Kenny discussed the ESM matter during brief bilateral talks with Spanish prime minister Mariano Rajoy.

“This would be of interest in Ireland as the first country where the sovereign government borrowed money to recapitalise the banks,” said Kenny, sensing “strong support” at the Brussels gathering for something he said would “obviously be in Ireland’s interests”.

The other burning issue on the agenda – Greece – was a “matter of quite considerable concern”, according to the Taoiseach. In a brief statement, EU leaders insisted Greece had a future in the euro zone, once it met its reform commitments.

Hollande went further, telling the Greek people: “We want to take steps to show you that we want to restore hope. That is in the interests of Greece, the euro zone and the global economy.”

Given the Spanish drama and continued uncertainty in Greece, there was an air of unreality over the end of EU crisis summit No 18, when European Commission president Hermann Van Rompuy dampened expectations about summit No 19.

The June meeting comes just two weeks after the crunch Greek election. Van Rompuy insisted it would be another “stepping stone” summit of “building blocks and working methods”.

Opinion was mixed on whether Hollande’s arrival – and his pre-programmed standoff with Merkel – rings in a new European political era.

Kenny said there was a “palpable” new momentum among leaders for a growth agenda. But beneath this goal, the sands of competing national interests continue to shift, creating fluid rather than fixed alliances.

Some countries that back Hollande on one issue oppose

him on another, and vice versa. The French president conceded yesterday that, on eurobonds alone, leaders were split three ways. Swift progress is unlikely – if that was ever the plan.

As all board the EU growth bandwagon, Merkel could note with satisfaction yesterday neither a challenge to her strategy to date nor defections among her central and northern European allies.

The hope in Berlin is that next month’s summit, with the French parliamentary election over, will yield progress on growth measures centred on investment for business and labour market reform.

“Yesterday was useful to clear the air,” said a European summit veteran yesterday. “Now it’s time to get down to work.”