EU seeks deal on safety net as cuts begin

City A.M. Reporter
EUROPEAN finance ministers yesterday sought to calm nervous markets by nailing down details of a massive financial safety net for the eurozone as Germany unveiled new budget cuts it hopes will set an example for its partners in the bloc.

German Chancellor Angela Merkel’s coalition agreed to pursue savings of €11.2bn (£9bn next year, part of a multi-year package of €80bn designed to restore investor confidence in the finances of the 16-nation currency bloc.

But Merkel postponed crucial talks with French President Nicolas Sarkozy on reforming the Eurozone’s governance, in a possible sign of differences between the cofounders of the single currency. The dinner meeting between Merkel and Sarkozy has been delayed by a week.

Ministers from the 16 nations that share the euro met to approve arrangements to allow a Special Purpose Vehicle to raise up to €440bn to lend to euro zone nations that run into Greek-style problems.

“I am confident we will have an agreement today on the SPV,” European economic and monetary affairs commissioner Olli Rehn said.

He said ministers would also discuss “the fiscal exit strategy [from economic stimulus measures] because it is evident that many countries need to accelerate fiscal consolidation”.

The ministers were also due to discuss ways of tightening surveillance of national budgets and applying earlier and tougher sanctions against countries that breach EU deficit limits or misrepresent their statistics, as Greece did.

Concern about political stability in Spain stoked market anxiety. Spain’s five-year government bond yield was back near the 3.91 per cent peak it hit immediately before the eurozone’s deal last month on a $1 trillion backstop deal for the single currency area and before the ECB began buying government bonds.

In Berlin, Merkel’s cabinet agreed to pursue savings of €30bn over the next four years in welfare, mainly from unemployment benefits, and to slash thousands of federal government jobs.