EU summit crucial for euro rescue

City A.M. Reporter
THE euro faces a decisive week as European Union leaders, urged on anxiously by the US, seek agreement on a convincing rescue plan that has eluded them for two years.

Despite short-term market optimism about a possible deal to tackle Europe’s sovereign debt crisis and underpin the survival of the single currency, the outcome is far from certain as the EU gears up for a summit in Brussels on Thursday and Friday.

“This week, the stable future of the euro and thus the economic recovery in Europe and employment are at stake,” said EU Economic and Monetary Affairs Commissioner Olli Rehn. “This calls for a convincing package of measures from the European Council (summit).”

Portuguese Prime Minister Pedro Passos Coelho went further.

“We have to find a response” to the crisis, he told the daily Publico. “If we don’t, clearly that could represent the end of the European Union.”

If all goes according to plans being hatched in Berlin and Paris, the EU will have taken a step towards fiscal union by Friday night, agreeing on a treaty change to anchor coercive budget discipline for the 17-nation currency area.

The European Central Bank will have cut interest rates on Thursday to counter a looming recession and taken new measures to provide longer-term funding for Europe’s teetering banks.

And new prime ministers in Italy, Greece and Spain will have demonstrated their commitment to tough austerity measures and structural economic reforms to tackle their debt problems and restore investor confidence.