A European Union summit ended early Thursday with a warning to Greece that it will have to stick to its bailout terms if it wants to stay in the eurozone, but failed to resolve Franco—German differences over the issue of eurobonds.
“We want Greece to remain in the euro area while respecting its commitments,” EU President Herman Van Rompuy said after discussions which started Wednesday evening and dragged on for about five and a half hours.
Athens has been asked to pursue tough economic reforms and budget cuts in return for the 173—billion—euro (218—billion—dollar) bailout it was granted in March. But if anti—austerity parties prevail in elections next month, the deal is likely to be broken.
To sweeten the pill, German Chancellor Angela Merkel raised the possibility of quicker access to EU regional funds. “So it is a positive message, but Greece would have to meet its obligations,” she insisted.
Asked whether the EU was readying contingency plans in case Greece were to leave the euro, Eurogroup president and Luxembourg premier Jean—Claude Juncker said, “We have to consider all kinds of events, but our working assumption is that Greece will stay.” On Wednesday, the Bundesbank called developments in Greece “extremely worrying,” while German weekly Die Zeit reported that the European Central Bank (ECB) had set up a crisis team to prepare for a Greek exit. The ECB refused to comment.
Meanwhile, Van Rompuy predicted that reconciling opposite points of view on eurobonds — the joint issuance of eurozone sovereign debt “will take time.” French President Francois Hollande said he was “not alone” in defending them. Earlier, he argued it was unfair for Spain or Italy to pay 6 per cent interest on their bonds while Germany’s yield on two—year debt issuances reached a low of 0.07 per cent on Wednesday.
But Merkel rejected the idea. “I believe eurobonds do not contribute to accelerating growth,” she said on arrival in Brussels.
After the summit, she told reporters leaders had “a very balanced and sophisticated discussion.” No breakthroughs are expected soon.
“Nobody was asking for an immediate introduction of all this stuff,” Van Rompuy said, classifying eurobonds as part of a “longer—term project of deepening the monetary and economic union,” on which he would report in June.
Eurobonds would make debt servicing more expensive for Berlin and cheaper for Madrid and Rome.
German Finance Minister Wolfgang Schaeuble told Hamburg—based NDR public radio that this “would not encourage financial discipline, but exactly the opposite, and we’ve had enough of the opposite.” But several economists argue that Germany — the strongest eurozone economy — needs to pay a price to show it is committed to the single currency, currently threatened by and fears of debt crisis contagion to Spain, as well as Greek exit talk.
In pre—summit talks with Spanish Prime Minister Mariano Rajoy, Hollande also hiked the pressure on the ECB, whose president Mario Draghi attended the summit. The French president called for more cheap loans to eurozone banks.
Calls have multiplied — including from the International Monetary Fund and the Organization for Economic Cooperation and Development — for a eurozone action plan on banks, as lenders totter in Greece and Spain.
Germany has ruled out using the eurozone bailout fund to rescue banks, and Rajoy reiterated he does not need outside help. “The (Spanish) government does not have any interest and does not want to use funds from the EU or any other organization,” he said.
Meanwhile, talks on euro—wide deposit guarantees and bank resolution schemes went nowhere, despite Hollande’s insistence. Nor does Berlin seem amenable to the idea of helping Greece or Spain by giving them more time to meet EU deficit targets.
Germany prefers fiscal prudence, coupled with structural reforms.
It is also championing the fiscal compact, a European budget discipline treaty which newly—elected Hollande campaigned against.
French sources said ratification of the pact would be kept on ice “until there are enough (EU) growth instruments,” such as a eurobonds “roadmap” and a financial transaction tax, which Berlin backs but is opposed by Britain.
The Eurogroup presidency is another possible bargaining chip.
Schaeuble is the frontrunner to replace Juncker, but French officials have suggested he should give up his current job if he wants the post.
“Tonight’s meeting was about putting pressure, focusing minds and clearing the air,” Van Rompuy said. Concrete pro—growth measures — including a deal to boost European Investment Bank resources — are expected to be approved at the EU’s next summit, on June 28—29.
Keywords: European Union summit