EU leaders wrangle over deal

 

Taoiseach Enda Kenny has said that European leaders need to arrive at a definitive and comprehensive agreement this week to deal decisively with the looming euro zone crisis.

Mr Kenny was speaking as he arrived at the EU Council building in Brussels at the start of today’s summit. It is the first of two full-day summits where the 27 member states will attempt to find a solution that has the wherewithal to deal with the crisis. The second will be held on Wednesday.

It is focusing on Greece’s continuing sovereign debt problems; the question of recapitalising banks exposed to Greek sovereign debt; and also analysing the best means of increasing the “firepower” available to the EU’s rescue fund from its current levels of €440 million.

As talks continued today, there was a consensus that the talks and issues were difficult and of a highly technical nature, making for painstaking process. That said, there was no indication emerging from any delegation that an outcome could not be achieved on Wednesday.

French President Nicolas Sarkozy backed down tonight in the face of German opposition to demands to use unlimited European Central Bank funds to fight the euro zone's deepening sovereign debt crisis.

European Union leaders wrangled for hours over procedure and made little apparent progress in forging a strategy to overcome the crisis despite pressure from international partners and financial markets for decisive action.

Mr Sarkozy acknowledged that France's proposal to multiply the firepower of the euro zone's rescue fund by turning it into a bank and letting it borrow from the ECB was doomed for now because neither Germany nor the central bank would agree to it.

"No solution is viable if it doesn't have the support of all the European institutions," the French leader told a joint news conference with German Chancellor Angela Merkel.

Dr Merkel said only two options remained on the table for leveraging the €440 billion rescue fund, and neither involved drawing on the central bank. Many governments are opposed to more money being committed to the fund as that would have implications, especially for the triple-A rating of France.

This morning’s session was devoted to a full council meeting, involving all 27 countries, with the 17 euro zone leaders meeting in the afternoon examining the crisis facing the currency.

The Taoiseach said clear decision was needed which showed what he described as a “joined-up" thinking process.

“The meeting of the euro zone leaders will obviously be dealing with the Greek debt, the prevention of contagion and most importantly what all of this is about, the creation of growth and jobs in the European Union,” said Mr Kenny.

Asked if the writedown of Greek debt might have a knock-on effect for other bailed out countries including Ireland, Mr Kenny replied: “In the discussions that will taken place among the euro zone 17, we will clearly look at the prevention of contagion and the provision of firewalls. These are critical for everybody.”

Mr Kenny’s reference to firewall includes suggestions for a significant increase in the “firepower” of the bailout fund, from €440 million to a possible €1 trillion.

Alternative means of increasing ‘firepower’ which have been mooted include forms of insurance for funds; effectively transforming the European Financial Stability Fund into a bank with access to European Central Bank Funds; or involving the International Monetary Fund by way of a special purchase vehicle. The latter solution would require a change in IMF rules and might take some time.

Discussions have also centred on the amount that will be required to reacapitalise European Banks deemed vulnerable to the crisis – the estimate of what will be required has ranged between €90 billion and €110 billion. An additional issue, but one closely allied to the question of recapitalisation, is the prospect of banks taking an
additional haircut on Greek sovereign debt over and above the 21 per cent agreed at the summit in July. A figure of 50 per cent has been mentioned but not decided. There is also the question as to whether this additional haircut will be voluntary, or will be imposed on private investors.

Dr Merkel raised the possibility of treaty change to facilitate stricter and more interventionist rules as she arrived at the summit this morning. “We want more Europe, stronger rights so as to intervene. Treaty change for that should not be taboo,” she said.

Asked about progress, Dr Merkel said: “Today we are preparing for a decision on Wednesday. That is important because we are dealing with a technically complex process.”

Greek prime minister George Papandreou, whose country has been at the eye of the storm for almost two years, pointed to the problem being a wider one and not one focusing only on Greece. He said other member states needed to take responsibility. “It has been proven now that the crisis is not a Greek crisis. The crisis is a European crisis,” he said.

Additional reporting: Reuters