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Updated: May 8, 2010 12:24 IST

The euro strikes back as leaders demand radical reforms

DPA
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European Central Bank President Jean Claude Trichet, right, arrives for an EU summit at the EU Council building in Brussels, on Friday. Photo: AP.
European Central Bank President Jean Claude Trichet, right, arrives for an EU summit at the EU Council building in Brussels, on Friday. Photo: AP.

Eurozone leaders struck back at the financial markets they accuse of exacerbating Greece’s debt crisis at a dramatic summit in Brussels early Saturday, calling for instant and radical reforms to the euro’s rules in a bid to restore its battered prestige.

The euro slumped to a 14—month low against the dollar earlier this week as fears spread that Spain, Portugal and Ireland could replicate Greece’s financial problems. Leaders at the summit demanded unprecedented changes in a bid to check their currency’s fall.

“The eurozone is going through the worst crisis since its foundation (in 1999) ... We will do everything in our power to ensure the stability and unity of the eurozone,”French President Nicolas Sarkozy said.

The Friday—evening summit had been called to discuss the lessons the eurozone should draw from Greece’s financial meltdown and to chart the path of future reforms.

But it turned into a desperate crisis—management exercise lasting well past midnight, as leaders grappled to find a sufficiently emphatic response to the Greek collapse. Four earlier crisis meetings have failed to convince markets that the eurozone means business.

“All the heads of state and government of the euro area are fully aware that we face a serious situation in the eurozone. It’s about responsibility and it’s about solidarity: we will face this situation together,” said the head of the Council of European Union member states, Herman Van Rompuy.

At the meeting, leaders warned that the summit would have to produce concrete reforms before markets reopen on Monday if leaders wanted any chance of restoring the euro’s credibility.

“We are in an emergency situation: we have to take decisions, ”Italian premier Silvio Berlusconi urged.

And in a move unprecedented in EU history, leaders called on the bloc’s executive to propose on Sunday a permanent system for rescuing eurozone states that risk default and summoned a meeting of finance ministers for the same afternoon to approve it.

That move was prompted by the “exceptional circumstances” affecting the euro, Mr. Van Rompuy said.

It usually takes the EU months or years to approve European Commission proposals.

The eurozone has no rules to bail members out, because its current rules are meant to make default impossible. It took the euro states weeks to cobble together a record 110—billion—euro (140—billion— dollar) loan to keep Greece from bankruptcy.

Details of the commission’s plans are not known, but diplomats said that options included setting up rules to activate loans from member states quickly, and allowing the commission to borrow on world markets so that it could fund individual states — something it can already do for non—euro countries. Any such move would require the approval of all 27 EU states.

Leaders also called for a concerted crackdown on financial markets, especially hedge funds and rating agencies, which they accuse of exacerbating the crisis by betting on a Greek default.

“We will fight without mercy in regulating financial markets ...

We will make the rating agencies moral,” Mr. Sarkozy said.

Luxembourg premier Jean—Claude Juncker said that the euro’s fall had been triggered by “a globally organized attack” and called on the group to fight back.

Finally, leaders called on one another and the commission to be much stricter in enforcing the currency zone’s deficit and debt rules — guidelines which they have all too often ignored in the past.

“We have asked the commission and the council to strictly enforce the (budget) recommendations addressed to member states,” leaders said in a joint statement.

The commission is set to propose a series of measures aimed at reinforcing eurozone cooperation and policing on Wednesday.

“We will defend the euro whatever it takes. We have several institutions at our disposal, and we will use them,” commission head Jose Manuel Barroso said.

Attention now shifts to the commission and EU meetings on Sunday, ahead of markets’ opening on Monday morning.

Keywords: Serious situation


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