Germany and France at odds as euro falls

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.

Mr Hollande said he raised the possibility of introducing eurobonds with a common euro zone guarantee as well as the granting of new powers to the European Stability Mechanism bailout fund to directly rescue banks.

He insisted he was not alone in backing eurobonds, long resisted by Dr Merkel, but recognised tough opposition to the notion from leaders he did not name.

“I noted that a number of countries were totally hostile, others considered this in the long term and yet other countries considered that it could be feasible at a closer date,” he said shortly before 2am this morning.

“It is not for me to speak on behalf of Germany but what I noted is that Mrs Merkel does not consider eurobonds to be an element of growth but as a long-term integration perspective.”

For her part, the chancellor said there was a difference of opinion on this topic but said the discussion was very balanced.

“We spoke differently about eurobonds. I said we need greater economic co-ordination in eurozone and that we see considerable difficulties when we think of the fiscal treaty what possibilities exist to shape the treaties,” she said.

On this point she was supported by European Central Bank chief Mario Draghi, who said eurobonds made sense “only when you have a fiscal union”.

Mr Draghi said the most important thing to emerge from the meeting was a “commitment to move economic and monetary union to new stages.”

He and the German and French leaders were speaking separately to reporters after a summit in which EU leaders sought to advance a new plan to stimulate economic growth.

“It was a very positive meeting with momentum palpable for leaders to produce an agenda for growth,” Taoiseach Enda Kenny said.

He said it was clear from the meeting that the treaty Irish people will be voting on next Thursday was not going to be changed and that anything agreed in respect of the growth agenda would be additional.

Officials had played down expectation of any definitive agreement on growth last night and said a deal was unlikely before the next summit, at end the end of June.

The talks came amid doubt about the place of Greece in the single currency and anxiety about the state of Spain’s stricken bank sector.

Renewed market turmoil drove the euro to its lowest level against the dollar for almost two years yesterday.

Mr Kenny, attending his tenth European summit, said the situation in Athens was a “matter of quite considerable concern”.

He also expressed a big interest in suggestions, originating from Spain, that the ESM fund be given new powers directly prop up stricken banks 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,” the Taoiseach told reporters.

“Obviously it would be in Ireland’s interest and would be something we’d be exceptionally interested in.”

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 Mr Rajoy before the summit. “They discussed growth and all the issues surrounding that and the issue of banking in general,” the Taoiseach’s spokesman said.

The leaders also issued a short communiqué reiterating their support for Greece’s continued membership of the single currency while the country respected its bailout commitments.

“We will ensure that European structural funds and instruments are mobilised to bring Greece on a path towards growth and job creation,” they said.

“Continuing the vital reforms to restore debt sustainability, foster private investments and reinforce its institutions is the best guarantee for a more prosperous future in the euro area.

“We expect that after the elections, the new Greek government will make that choice.”

Speaking this morning, Tánaiste Eamon Gilmore said Ireland was working on being seen as different and separate to Greece. There was no "contingency plan" for Ireland in the event of Greece leaving the euro, he said. Mr Gilmore said a number of issues had been discussed at the summit which he hoped to see action on later this year.

These included the use of 'project bonds' to fund infrastructure within the EU, and the possible use of unused structural funds to tackle youth unemployment.

European Commission chief Jose Manuel Barroso said Europe should wait for the people of Greece to have their say on June 17th. “We will not let ourselves be derailed by those who want to promote speculative scenarios.”