EUROPEAN Union leaders will make a new attempt this week to convince financial markets they can contain a debt crisis by agreeing how to tighten economic policy coordination and strengthen budget discipline.
The 27 EU member states and the executive European Commission will also set out plans for boosting economic growth and creating jobs at a summit on Thursday, three days after the leaders of Germany and France discuss strategy in Berlin.
A show of EU unity would help persuade markets the bloc has a common response to the worst crisis to hit the 16-country eurozone since the single currency was created 11 years ago, and can prevent Greece’s debt problems spreading to other states.
“Our priority is putting order into our public finances. We need fiscal consolidation and a new financial stability culture in Europe,” EC President Jose Manuel Barroso said after meeting German Chancellor Angela Merkel on Friday.
“There is new awareness in Europe that rules have not been respected and must now be respected. Circumventing the rules... is putting at risk our collective economic future. We need to move in the opposite direction. We need to strengthen our rules and the way the EU runs.”
Failure to show solidarity could increase the nervousness on markets that has helped drive down the euro and shares globally, and increased worries that countries such as Spain and Portugal could follow Greece into debt payment trouble.
Agreement on an aid package for Greece worth €110bn (£91.6bn) and a safety net for other eurozone countries worth €500bn has gone some way to calming investors’ worries.
Q&A: EUROZONE WOES EXPLAINED
Q. WHAT ARE THE PROBLEMS FACING THE EUROZONE?
A. Markets’ main concern is the heavy indebtedness of periphery countries such as Portugal, Italy, Ireland Greece and Spain. Greece is seen as the most endangered as it is running a budget deficit of 13.6 per cent of GDP, more than four times the EU limit.
Q. WHAT IS BEING PROPOSED AT THIS WEEK’S SUMMIT?
A. EU leaders are likely to press for tougher rules enforcing the region-wide budget deficit limit of three per cent of GDP. Germany has circulated a nine-point paper suggesting, among other things, suspending repeat offenders’ EU voting rights and an insolvency procedure for states.
Q. WHAT ARE MARKETS’ GRIPES WITH POLITICIANS?
A. Markets believe the EU has consistently been behind the curve in dealing with member states’ fiscal difficulties. They have also been angered by what they see as “smoke and mirrors” in the way policies have been communicated. A unilateral ban on naked short-selling by Germany in May added to a sense of poor coordination between EU states.
City A.M. Reporter