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December 8, 2011Europe Agrees To Disagree, Next Summit Date Set For March 2012 As David Cameron Kills Compromise
Not the headlines Gollum van Rompuy needed at 3:30 am CET, when he was scheduled to have a press conference:
EU LEADERS AGREE THEY WILL REEXAMINE CEILING OF ESM BAILOUT FUND IN MARCH 2012 - EU DIPLOMAT via RTRS
TREATY CHANGE LIKELY TO BE DONE AMONG EURO ZONE PLUS OTHER COUNTRIES, BUT NOT AT 27 - EU DIPLOMATS via RTRS
EU LEADERS AGREED PERMANENT ESM BAILOUT FUND WILL NOT HAVE A BANKING LICENCE -- EU DIPLOMAT
And the guilty party: An agreement at 27 fell through after British Prime Minister David Cameron demanded concessions that Germany and France were not willing to give, one of the officials said.
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The news conference by European Council President Herman Van Rompuy that had been planned for 0200 GMT has been delayed by at least 30 minutes as talks by European Union leaders are ongoing, a council press officer said.
Translation: tomorrow's summit is as of now an epic failure. As for the Eurozone lasting through January 1 of 2012, let alone March... good luck.
More:
The European Union failed to secure backing from all 27 countries to change the EU treaty at a summit on Friday, meaning any deal will now likely involve the 17 euro zone countries plus any others that want to join, three EU diplomats said.
An agreement at 27 fell through after British Prime Minister David Cameron demanded concessions that Germany and France were not willing to give, one of the officials said.
The decision means Britain could now be left outside the tent as up to 25 EU member states - not including Denmark which has an opt-out from the euro -- push ahead with deeper integration, including much tighter debt and deficit rules among the euro zone countries, the diplomats said.
Germany and France want to change the EU treaty to enforce much stricter rules among the euro zone states and others due to join, with the aim of preventing a repeat of the debt crisis afflicting the single currency area for the past two years.
While Britain could still reverse its position, such a move could expose Cameron to criticism at home, with a strong eurosceptic stream in his Conservative party determined that Britain should take a tough line with Europe and win back powers that critics say have been surrendered to Brussels.
The danger for Cameron is that if up to 25 countries do push ahead with deeper integration, it could involve discussions over changes to the single market and financial regulation, both of which could have a profound impact on the British economy.
"We've always said we would do it at 17 if it didn't work at 27. That's what happened," one senior EU diplomat said. Another added that a new treaty would likely involve the 17 euro zone states plus the eight non-euro zone countries that are expected to join the single currency in the future.
"Cameron was clumsy in his manoeuvering," another senior EU diplomat said.
British diplomats were not immediately available to comment.
As well as discussing treaty change during more than 10 hours of talks on the first day of a two-day summit, EU leaders also debated steps to strengthen their financial resources to tackle the debt crisis.
One diplomat said the leaders had agreed that the euro zone's permanent bailout fund, the European Stability Mechanism, would have a capacity capped at 500 billion euros, rather than earlier expectations that it could top that figure.
It was also agreed that the ESM would not be granted a banking licence, as had originally been proposed by European Council President Herman Van Rompuy, the diplomat said.
The leaders also agreed to explore the idea of providing bilateral loans to the International Monetary Fund totalling 200 billion euros, with 150 billion of that coming from the euro zone, to bolster IMF resources to tackle Europe's debt crisis.
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December 8, 2011
EU summit to seek bigger "bazooka" against crisis
Brussels, Eurozone leaders will seek a bigger financial "bazooka" to battle the debt crisis and mull radical steps towards deeper union with treaty change at a game-changing EU summit opening Thursday.
"Markets don't give a hoot about treaty change as it's all long-term," said an EU source close to backroom talks ahead of the two-day meeting. "Money is all they care about and we need to convince."
With the entire 17-nation area, even powerhouse Germany, under threat of a ratings downgrade and its third economy, Italy, tipping near the edge, the talks kicking off at 1830 GMT and running through Friday are pivotal to the euro's future.
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As the debt crisis relentlessly spirals, a deal at the previous summit in October to pump up Europe's bailout fund to a trillion dollars -- enough to rescue big economies such as Italy and Spain -- has collapsed due to slumping market confidence.
On a visit to Europe as global concern mounts, US Treasury Secretary Timothy Geithner said the European Union must erect "the highest possible firewall to avoid contagion".
Italy alone needs 400 billion euros ($538.0 billion) to refinance debt coming due next year, more than is left in the coffers of the EFSF emergency fund after it helped Ireland, Portugal and Greece.
The European Financial Stability Fund now holds only 250 billion euros.
"For people to invest in the EFSF, they need to be convinced they will get their money back," said a senior EU diplomat.
One option to show Europe can save its own is to double the firepower of its so-called anti-crisis "bazooka" by enabling the temporary EFSF to continue lending for a time alongside a 500-billion-euro European Stability Mechanism (ESM), which is to be launched mid-2012, but was originally intended to replace the EFSF.
But Germany does not like that idea, a government source said Wednesday.
Another option is for the ESM to morph into a bank, which would then enable it to borrow from the European Central Bank (ECB).
A third possibility would be to funnel EU funds to the IMF which it would channel back in case of need. But Britain is reluctant to see the Washington-based fund set up to help nations in trouble now salvaging a currency.
Whether or not EU leaders come up with a bigger bazooka to protect nations using the single currency, they are expected to agree "steps to make the economic union commensurate with the monetary union", as EU president Herman Van Rompuy put it in a draft report to the 27 nations, leaked on Wednesday.
The stakes are high.
If markets are to regain confidence in the euro and lower borrowing costs, the EU needs to engrave in stone new rules to end repeated breaches of the debt and deficit ceilings already written into the regulations, Van Rompuy says.
The aim would be to agree a "fiscal compact" enabling Brussels to trigger sanctions against suspect budgets even before they go to parliaments -- a notion some say would lead to a democratic deficit.
Under proposals put by Europe's power couple, France and Germany, euro nations would be asked to enshrine strict "golden rule" budgetary discipline in their legislation under the watchful eye of the European Court of Justice.
There are hopes this could unleash the ultimate weapon in the euro fight-back after new ECB chief, Italy's Mario Draghi, recently suggested he could consider market intervention should the eurozone agree a "fiscal compact".
Chancellor Angela Merkel and President Nicolas Sarkozy want treaty change in the interests of a long-term solution to the crisis. "We need to renew the contract between members of the eurozone," they said in a letter to Van Rompuy.
But Van Rompuy says in his report that tighter rules on budgetary discipline can be agreed quickly and simply, without need for cumbersome treaty change.
Leaders merely need to amend a protocol attached to the EU rule-book, the Lisbon Treaty, he said. This would avoid embarking on lengthy fraught referendums required to change the treaty.
However, Van Rompuy said simplified treaty change would be needed if leaders toughen up measures to stop nations dodging sanctions, as has often been the case. That would require a change in voting rules.
While Van Rompuy has hopes of a rubberstamp to his proposals over coffee after dinner, EU diplomats tip a long sleepless night of tough talk.
Merkel's spokesman Steffen Seibert predicted "very challenging and occasionally very difficult talks."
As the 10 nations "out" of the euro worry about being sidelined in a "two-speed" Europe, Britain already has threatened to block treaty change unless London receives assurances of protection for its powerful financial sector.
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December 4, 2011 Pivotal week for Europe's leaders and fate of euroBrussels, Europe's government-debt crisis, which has dragged on for more than two years, is entering a pivotal week, as leaders across the continent converge to prevent a collapse of the euro and a global financial panic that could result.
Expectations are rising that Friday's summit of leaders of the 27 countries in the European Union will yield a breakthrough. An agreement on tighter integration of the 17 EU countries that use the euro — especially on budget matters — would be seen as a crucial first step. That could trigger further emergency aid from the European Central Bank, the International Monetary Fund or some combination, analysts say.
The coming days "will decide if the euro will survive or not," Emma Marcegaglia, the head of Italy's industrial lobby, Confindustria, said Sunday.
French President Nicolas Sarkozy, German Chancellor Angela Merkel, European Central Bank Chief Mario Draghi and even U.S. Treasury Secretary Timothy Geithner will star in a 5-day financial drama leading up to the summit.
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If the summit is a failure, Sarkozy warned last week, "the world will not wait for Europe."
Sarkozy and Merkel meet in Paris on Monday to unveil a proposal for closer political and economic ties between the 17 euro countries. While the leaders differ on some of the details, their cooperation has been so tight they have come to be known by a single name — "Merkozy."
The two agree overall on the need for tougher, enforceable rules that would prevent governments from spending or borrowing too much — and on certain penalties for persistent violators.
"Where we today have agreements, we need in the future to have legally binding regulations," Merkel said Friday.
Merkel wants to change the basic EU treaty to reflect the tougher rules on euro countries and make them enforceable. Even if there is general agreement on Friday, actually putting new rules in place through treaty changes could take more than a year. And many economists fear the new rules alone would not be enough to halt the rise in Europe's borrowing costs.
The hope is that a firm expression of intent, however, would reassure the ECB, so that it can make stronger efforts in the short term. That would give governments time to get their finances under better control and make economic reforms that would improve growth.
The urgency has been heightened in recent weeks as Italy and Spain, the continent's third- and fourth-largest economies, face unsustainable high costs to finance their debts. The yield on 10-year Italian bonds is around 7 percent. Yields above that level forced Ireland, Portugal and Greece to seek bailouts. By comparison, bond yields in Germany, Europe's largest and most stable economy, are roughly 2 percent.
"The eurozone is threatened to face an existential situation if it becomes clear over the next few weeks that several member states cannot cover their refinancing needs, or can only do so at suicidal conditions," former German Finance Minister Peer Steinbrueck told the Sunday edition of German tabloid Bild.
"Everything must be done to hinder the eurozone from breaking up," he said.
Italy, whose government debt is equivalent to 120 percent of the country's annual economic output, needs to refinance euro200 billion ($270 billion) of its euro1.9 trillion ($2.6 trillion) of outstanding debt by the end of April.
The size of the problems facing Italy and Spain are considered too large for the existing funds available to the European Financial Stability Facility ($590 billion) and the IMF ($389 billion.) To boost the firepower of the IMF, several economists have proposed that the ECB lend to it.
"We are now entering the critical period," the EU's financial chief, Olli Rehn, said last Wednesday.
That same day, the U.S. Federal Reserve, in coordination with the ECB and four other central banks, sought to give stressed-out European banks some relief. The Fed announced a plan to make it cheaper for banks to borrow American dollars, which is the dominant currency of trade. It was the most extraordinary coordinated effort since October 2008, and it prompted a nearly 500-point rally in the Dow Jones industrial average.
Still, that help did not address the fundamental problem in Europe: unsustainable levels of government debt.
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December 8, 2011
