German Chancellor Angela Merkel speaks during a press conference at the EU headquarters in Brussels yesterday.
BRUSSELS: Germany rebuffed calls for more financial risk-sharing in the euro zone yesterday, rejecting a proposal for a fund to help debt-laden countries cope with economic shocks and leaving open who would pay to wind down stricken banks.
With an eye on a general election next year, Chancellor Angela Merkel made EU officials drop any mention of a shock-absorber fund, backed by France and southern European states, from the conclusions of a two-day European Union summit.
She also resisted efforts by French President Francois Hollande and Italy to loosen EU budget discipline rules by exempting public investment when calculating national deficits.The European Central Bank also rejected any let-out clauses from fiscal consolidation. “Differentiating between good and bad deficits makes no sense,” ECB executive board member Joerg Asmussen said. “Each deficit has to be refinanced on the capital markets. One should not touch the rules of the (EU) Stability Pact.”
Amid optimism from many leaders that the euro zone has turned the corner by agreeing on a single banking supervisor and fresh support for Greece, Merkel warned that the bloc faced a long, hard slog to clean up public finances and revive growth.
“One reason I am careful with my forecasts is the adjustment process, the changes that we are going through are very difficult and painful,” she said.
European Council President Herman Van Rompuy told a news conference that the issue of how to finance a Single Resolution Mechanism for banks until levies on financial institutions provided sufficient money would have be decided later. However, European Commission President Jose Manuel Barroso said the bloc’s ESM rescue fund would be able to inject capital directly into troubled banks in countries under an assistance programme, without it weighing on national debt, from mid-2013.
Greek Prime Minister Antonis Samaras said direct ESM recapitalisation for Greek banks could reduce Greek debt by ¤50bn, but Germany and its north European allies have so far rejected any assumption of so-called “legacy assets”.
After more than eight hours of late-night talks, leaders promised to push ahead with setting up a mechanism to resolve problem banks and launched talks on how to make countries stick to economic targets with the help of a small common fund. Merkel made clear she had agreed only to a carrot-and-stick “solidarity fund” to reward states that carry out major economic reforms.
“We are talking about support linked to improvements in competitiveness.” she told reporters. “We are talking about a very limited budget. Not three digit billions, rather ¤10 or 15 or 20 bn.” Reuters
