Merkel plays down talk of new EU debt initiative

 

GERMAN CHANCELLOR Angela Merkel rejected a growing clamour to widen her response to Europe’s debt crisis as she and the leaders of France, Italy and Spain resolved to create a new tax on financial transactions in a limited number of EU countries.

The move, which Ireland is likely to shun, came as Italian technocrat leader Mario Monti hosted talks in Rome yesterday with Dr Merkel, French president François Hollande and Spanish premier Mariano Rajoy.

Although the International Monetary Fund called for extensive new measures to tackle the turmoil in debt markets, Dr Merkel defiantly held the line that the time was not right to mutualise debt in the euro zone or for Europe to rescue banks directly.

“Liabilities and controls go together,” she said, as she dismissed renewed Spanish pressure for Europe’s bailout funds to recapitalise its banks without increasing the country’s national debt.

Dr Merkel said she had no oversight powers in relation to Spanish banks so she could not channel German taxpayers’ money into them directly.

“I’m the German chancellor; I can tell my banks that. You would have a huge problem here,” she said.

Even as the four leaders gave their blessing to a €130 billion plan to stimulate economic growth, there was no suggestion that the initiative would go beyond existing proposals. These include more firepower for the European Investment Bank, new measures to tap unused structural funds and the introduction of EU-backed “project bonds” for infrastructure.

German sources have been at pains for days to play down expectations for a two-day European summit in Brussels next week, saying there are clear limits to the chancellor’s room for manoeuvre.

Dr Merkel’s stance marks a deepening rift between Germany and the other big euro zone countries and comes amid mounting concern that the turmoil in the euro zone threatens the viability of the single currency.

Mr Monti said yesterday that the euro zone faces “progressively greater speculative attacks” against its weakest members and Mr Hollande said it should not take 10 years to issue jointly-guaranteed eurobonds.

“There can be no transfer of sovereignty if there is not an improvement in solidarity,” said Mr Hollande in reference to Dr Merkel’s push for deeper economic integration.

The four leaders agreed, however, to work together to create a EU financial transaction tax in a limited number of EU countries.

Supporters of the proposal say banks and other institutions should pay more tax at a time of extensive government support for the sector in the wake of a financial crisis it largely caused. Opponents argue it will damage economic recovery.

In light of Britain’s refusal to accept Europe-wide tax, there is anxiety in Dublin that Irish participation in a trimmed-down version could lead to the loss of financial business to the City of London.

Minister for Finance Michael Noonan said Dublin was unlikely to participate in the new initiative but insisted he was in no particular alliance with British chancellor George Osborne, chief opponent of a pan-EU tax.

Mr Noonan said the Government will work to ensure the plan for a limited tax does not undermine Ireland’s interests, saying the rules governing this procedure were restrictive.

“In the treaty – it’s fairly tightly drafted – they say it can only happen if there’s no impact on the internal market or if it doesn’t adversely affect other countries which aren’t in the enhanced cooperation.”

He said the transaction tax move did not “kick across” to other issues like corporate tax.