Mini-EU summit
June 22, 2012
Secretary General of the Spanish Banking Association, Pedro Pablo Villasante admitted that his country soon might not be able to bear the mounting costs of selling new government bonds. The statement came just before the eurozone's four most important countries are to meet for a mini summit in Rome on Friday.
Spanish Prime Minister Mariano Rajoy does not only need some 100 billion euros ($126 billion) to help his country's ailing banks but he also urgently needs buyers for Spanish government bonds.
Madrid has to pay record interest for the bonds, and it's a problem shared by Italy. Italian Prime Minister Mario Monti also has to pay record interest for his country's bonds. Monti suggested the European partners to buy up his country's bonds in a scheme similar to when the European Central Bank (ECB) bought up Italian and Spanish bonds on a large scale.
Italy under pressure
But the ECB is hesitating before buying the debt out of fear of its own balance sheets. ECB executive board member Benoit Coeure suggested the eurozone rescue funds should step in to buy up the Spanish and Italian bonds, arguing that the EFSF had all the means necessary to relieve market pressure. Monti so far is against that idea. According to the Italian daily Corriere della Sera he is worried about a full fledged bailout by the EFSF as it might cost him his job as prime minister.
Criticism of his government is already mounting. The parties that have so far backed him are currently blocking an important labor market reform. According to Italian media, Monti could soon be forced to step down if Italy ends up having to request an EFSF bailout.
"Monti has not done enough to boost the Italian economy," Oliviero Roggi of Florence University told the Financial Times. "We are entering the vicious 'Greek' circle of recession. It leads to companies going bust and then the state will go bankrupt. Then, a bailout is inevitable."
Merkel rejects taking on more risks
Germany, however, still rejects any form of collective debt or taking responsibility for other countries' debt. Merkel last week at a party meeting said collective liability was only an option if there was also collective control.
"We cannot have common liability but leave the control with each individual country," she told her conservative party's panel of economics experts.
Merkel is at odds over the issue with French President Francois Hollande. He is likely to use the Rome meeting to again call for eurobonds, common European bonds with shared liability. But France is now willing to give up sovereignty over its budget in return for Berlin agreeing to eurobonds. EU diplomats said they expect little progress over the issue in Rome. Hollande though admitted that he'd need partners and that there'd have to be a consensus reached before the larger EU summit next week in Brussels.
Timetable for permanent rescue fond at risk
The issue of a banking union is also likely to be on the Rome agenda. Germany is skeptical about the proposed collective liability for banks in trouble. First, Berlin says, there'd have to be a common banking supervision.
The German chancellor though is also under pressure from within Germany. The bill on the permanent fund European Stability Mechanism (ESM) probably won't be enacted as planned by July 1. There most likely will also be court cases challenging the bill and Germany highest court has recently said parliament would have to have a greater say on the agreements on euro rescue efforts.
Europe Europa in der Pflicht
At the G20 summit in Los Cabos, the EU promised to stabilize the eurozone. In light of the troubles with Spain and Italy, it might be difficult to live up to that promise.
In Rome, the leaders of Germany, France, Italy and Spain will have to find a common position in order to discuss the next reform steps with the rest of the EU. In the end, it should lead to an actual economic union, according to the former head of the European Central Bank, Jean-Claude Trichet.
"We have to embark on the activation of what I call an economic federation by exception," Trichet, who now heads the Bruegel think tank, said in a statement. "When you behave inappropriately, you must have the activation of the entire body of Europe, including the European Parliament, to decide and avoid the difficulty in which one particular country could put the whole of the euro area."
Football first
Despite the urgency of the issues at stake, Merkel has only three hours scheduled for the Rome talks. By the afternoon she wants to be back on the plane to make it on time to the stadium in Gdansk, Poland, where Germany is to play Greece in the quarterfinals of the European Football Championships.
Author: Bernd Riegert, Rome /ai
Editor: Klaus Jansen / sms