The hope is that the seriousness of the leaders’ effort to finally solve the
interrelated problems of Greek debt, weakened banks and a bailout fund in need
of reinforcement will keep speculators at bay when the financial markets open on
Monday morning. But now there is heavy pressure on the leaders to deliver the
goods at their next meeting, set for Wednesday.
“Further work is still needed, and that is why we will take the decisions in
the follow-up euro zone summit,” said Herman Van Rompuy, the president of the
European Council.
Pervading the summit meeting on Sunday was a consensus that Europe had to
attack fundamental issues and stop merely putting out the brushfire of the
moment. “We all have a sense that the crisis in the euro zone is reaching very
worrisome levels,” said Donald Tusk, the prime minister of Poland, which now
holds the rotating presidency of the union. “We have to be happy that the
decision-making progress has gained some momentum, although we can’t say we have
reached the finish line today.”
Two factors especially drove the urgency of the meeting, which had already
been postponed once: the worsening situation in
Greece,
where strikes and protests erupted last week, and the rising cost for Spain and
Italy to borrow money, a sign of mounting speculative pressure. Washington also
put considerable pressure on European leaders to make decisions before the
Group
of 20 summit meeting in early November, because the long euro crisis is
straining the global economy.
Even so, participants at the summit meeting, originally intended to be
definitive, had to put off some final decisions until Wednesday because of
political and financial complexities.
The meeting on Sunday, which included a separate session of the 17 nations
that share
the
euro currency, was tense and sometimes acrimonious. French and German
leaders told Prime Minister
Silvio
Berlusconi of Italy in blunt terms that he must move faster to reduce his
country’s huge debt of nearly two trillion euros ($2.8 trillion), or about 120
percent of gross domestic product, which makes his country a target of
speculators.
Chancellor
Angela
Merkel of Germany urged Mr. Berlusconi to make “credible cuts” in an effort
to reduce pressure on the euro. President
Nicolas
Sarkozy of France, asked if he had confidence in Mr. Berlusconi, said that
he had confidence in the collectivity of Italian authorities, “political,
financial, economic.”
Mr. Sarkozy, who said that today’s leaders could not be blamed for the
mistakes of the past, told Prime Minister David Cameron of Britain, which does
not use the euro, to stop criticizing the work of the euro zone leaders. Mr.
Sarkozy told him, in essence, that if he wanted a say, Britain should join the
currency union, officials said. “You say you hate the euro, and now you want to
interfere in our meetings,” Mr. Sarkozy said, according to the officials.
Despite the friction, concrete progress was made. The leaders reached overall
agreement on recapitalizing Europe’s shaky banks, which they decided required an
extra 100 billion euros. They agreed that banks should first raise what capital
they can privately, and then turn to their own governments if necessary. If
those governments already have debt problems, then the bailout fund, called the
European Financial Stability Facility, could be drawn upon, but only “as a last
resort,” Mrs. Merkel said.
One big issue remaining to be decided is how to make the stability fund, now
set at 440 billion euros ($606 billion), large enough to cover Spain and
especially Italy as well as Greece and the smaller troubled countries of the
zone. Germany has been firm in rejecting a French idea to turn the bailout fund
into a special-purpose bank backed by the
European
Central Bank, arguing that doing so would violate European treaties, so
another approach is needed.
Both France and Germany are reluctant to put more of their own money into the
stability fund, so the leaders are discussing how the International Monetary
Fund could help expand the pot. There is also a serious conversation about
creating a separate fund linked to the stability fund that would be open to
investors and sovereign-wealth funds from outside Europe, like the Chinese,
Indians and Brazilians, as well as non-euro countries like Sweden and Norway.
The goal is to amass resources of 750 billion to 1.25 trillion euros in all, a
European official said.
The leaders are also discussing ways to use the stability fund as insurance
against partial losses that might be suffered by holders of sovereign bonds,
another way to get greater impact from the fund’s resources.
Before the Wednesday summit meeting, the European Union must also strike a
deal with bankers who hold Greek government bonds that Greece cannot repay in
full. The banks agreed in July to take a 21 percent loss on the bonds, but after
a worse-than-expected report on the state of Greece’s finances, they are now
being asked to take a “haircut” of as much as 60 percent of the bonds’ value. A
deal with the private bondholders is essential to making the rest of the package
of measures add up, and there was talk on Sunday that Mr. Sarkozy and Mrs.
Merkel would personally take over negotiations with the bankers if necessary.
There was also some discussion of limited changes to the European Union
treaty.
Mr. Van Rompuy, president of the European Council, raised the prospect of
“deepening economic union, including exploring the possibility of limited treaty
changes,” but underlined that such measures would need approval from each of the
27 member countries. “If we need treaty changes in a limited way, it is not a
taboo, but it’s not the aim,” he said. “The aim is deepening our economic union
and strengthening fiscal discipline.”
“It is normal that those who share a common currency must take some common
decisions relating to that currency,” he added. “In fact, one of the origins of
the current crisis is that almost everybody has underestimated the extent to
which the economies of the euro zone are linked, and we are now remediating
that,” Mr. Van Rompuy said.
As usual, Mrs. Merkel emphasized that there was no “magic wand” to solve the
problems of the euro in one meeting or proposal. Individual steps mattered, but
so does responsible government by all nations that use the euro, she said.
“Trust will not be achieved alone through a high firewall,” Mrs. Merkel said.
“Trust will not happen from a new package for Greece. Trust will only happen
when everyone does their homework.”
European leaders were struggling today with the results of decisions made
decades ago by other people, she said. “That’s why there will be many steps to
be taken,” she said, and they must fit together.
James Kanter contributed reporting.
http://www.nytimes.com/2011/10/24/business/global/24iht-euro24.html?_r=1&nl=todaysheadlines&emc=tha2
