EU Governments Make New Pledge to Common Response in Defending Euro     Print

A closely-watched meeting of EU finance ministers announced agreement Friday on a four-point plan to regain credibility for their countries’ bonds and for the embattled euro.

In announcing their “collective agreement,” the head of the European Council, which represents member-state governments, said that all 27 states supported the need for sanctions against countries that broke ranks. He gave no further details, but preparations for the Brussels meeting had aired a proposal for countries that break EU rules on deficits could lose some sorts of funding from the EU.

He said the meeting was “only the start of the process” of putting in place the new policies. The meeting took place against a backdrop of a sliding euro, slumping stock markets and global fears that economic disarray in Europe could trigger another “dip” in recovery after the 2008 recession.

The reaction of capital markets will probably not start to emerge until after the weekend. Even if they recover some confidence, there will remain longer-run doubts about the overall economic outlook in Europe.

But the EU finance ministers appeared to take a significant step toward closer “economic governance” in the EU by backing four main objectives:

· Practicing greater budgetary discipline

· Finding ways to reduce the divergences in competitiveness between member states

· Establishing an effective economic crisis management mechanism

· Finding ways to act quicker and in a more coordinated and efficient manner to deal with any future economic crises.

For Europe-watchers, a key positive aspect of the meeting was the apparent revival of greater agreement among the big EU countries, especially Germany and France, and wider consensus across the EU.

Deep-rooted divergences – centered on Germany’s insistence that other EU countries adopt stricter, more intrusive rules about their finances – broke into the open this week when Berlin unilaterally banned “naked short selling” of stocks and bonds. Chancellor Angela Merkel defended the move as a defense against “the existential threat” to the euro represented by speculators.

France and other EU countries publicly criticized the move as an ill-conceived stopgap measure that would have no real financial impact and as a unilateral initiative that damaged hopes for a common European stance on financial reform.

The German action has come to be widely viewed in a slightly different light as more information has emerged about the circumstances surrounding Berlin’s move.

Now it is being understood as a political move by Merkel to appease German parliamentarians – who want to “punish markets” – and get them to vote approval of Germany’s role in the huge collective commitment to bail out Greece and through up a defensive cordon around the debt-threatened situations of Spain and Portugal.

Concisely reported by the BBC, Merkel and her cabinet were caught short when news of the short-selling ban was leaked mid-week by a government agency involved in the process. She had planned to bring up the proposal at the Friday meeting in Brussels.

Now she has obtained parliamentary passage of the loan package (of 440 billion euro for a special financial vehicle for supporting eurozone governments) and also regained some credibility for her international position as a staunch defender of the common currency and European financial stability who is managing to maneuver her way with an electorate that resents “paying for” Greece and other weaker economies. More realistically, Merkel and her team seem to realize that German economic growth owes much to the free-spending, free-importing ways of Greeks, Spaniards and the rest of the eurozone.

Of course, the convergence plan that was sketched out Friday in Brussels is very much in line with the reforms that Germany wants. And it remains to be seen how far Berlin will be willing to go in trying to boost its own domestic consumption as a way of boosting growth for Europe as a whole.

German policy now has major implications, too, for Europe’s trading partners, starting with the United States. The Obama administration has publicly supported the moves of the sort that emerged in Brussels as part of European leaders’ concerted drive to gain a breathing space for planned reforms.

European Affairs