State of the union

In his annual "state of the union" address to the European Parliament on Wednesday, European Commission President Jose Manuel Barroso said it is crucial for the bloc's 27 member states to unite in the face of the ongoing debt crisis. Without "more unification," Barroso said, there will be "more fragmentation."

"This is going to be a baptism of fire for a whole generation," he added, referring to the debt crisis.

He told parliamentarians that "we are today faced with the greatest challenge our Union has known in all its history," but he added that it was both "possible" and "necessary" to overcome the crisis.

The speech comes at a time of deepening fears about the future of the euro currency as markets react to the possibility that Greece may have to partially default on its debts. Barroso insisted that Greece "is, and will remain, a member of the euro area." However, he said the Greek government must meet its commitments to reduce its budget deficit "in full and on time."

New tax

In his speech, Barroso put forward a proposal for the introduction of a new tax on financial transactions, saying the financial services sector must "make a contribution" towards resolving the debt crisis. French President Nicolas Sarkozy and German Chancellor Angela Merkel signalled their support for such a tax at a summit last month.

"I am very proud to announce that today the [European] Commission has adopted a proposal for a financial transaction tax," he said.

Barroso pointed out that since the global financial meltdown of 2008, the financial sector has received 4.5 trillion euros ($6.1 trillion) in state aid and public guarantees. If adopted, the commission estimates that the tax would bring in 30 to 50 billion euros a year.

The United States opposes the tax, along with Britain, where the economy relies heavily on the financial services sector.

Sharing European debt

Barroso also expressed support for eurobonds, saying they would be "advantageous." However, he insisted that such international bonds should only be issued once eurozone nations have agreed on tighter joint economic policies. He also said it may be necessary to change EU treaties as part of efforts to solve the debt crisis.

"Once the euro area is fully equipped with the instruments necessary to ensure both integration and discipline, the issuance of joint debt will be seen as a natural and advantageous step for all," he said.

Following the speech, EU lawmakers approved a package of six items of legislation on budget discipline and economic coordination, designed to shore up confidence in the eurozone. The new rules will make it easier to impose fines on governments that let their finances slip out of control.

When it was first proposed a year ago, the package was billed as the definitive solution to the debt crisis, but since then European leaders have been forced to debate further reforms to boost their response to the eurozone's problems.

Boosted bailout fund

In a further effort to calm investor fears and ensure Europe's fiscal stability, Finland became the 10th eurozone state on Wednesday to vote to expand the scope and size of the EU's rescue refund.

Just over half of Finnish lawmakers voted to increase the country's share of the European Financial Stability Facility from 7.9 billion to 14 billion euros. The fund has already granted loans to Ireland and Portugal, and is to be involved in a second bailout for Greece.

The EFSF's new powers will allow the Luxembourg-based fund to loan money to any country as a precaution, buy sovereign bonds of struggling eurozone states on the secondary market and provide countries with money to recapitalize banks hard-hit by debt downgrades.

The German parliament is to vote on the legislation on Thursday which could see its own stake in the fund increase from 123 billion to 211 billion euros.

Austria is due to vote on Friday while Cyprus, Estonia, Malta, the Netherlands and Slovakia will vote in October.

Author: Joanna Impey, Charlotte Chelsom-Pill (AFP, AP, dpa)
Editor: Martin Kuebler