Euro Zone Crisis: No More Merkozy At Day 1 of Summit
The first day of the euro zone summit in Brussels has already exposed tensions and even “acrimony” among European leaders, who are more “at odds than ever before in the 30-month crisis.”
The division was especially apparent in the positions taken by the leaders of France and of Germany, recently elected socialist president François Hollande and Chancellor Angela Merkel. For the first two years of the crisis, France under former President Nicholas Sarkozy worked in such close coordination with Germany’s Merkel as to give rise to the term “Merkozy.”
As the summit opened, Hollande made a “new plea for EU solidarity” and spoke of the need to “find rapid solutions for those countries facing pressure from the market, despite having made huge efforts to balance their budgets,” a pointed reference to Italy and Spain. Italy has the second-highest debt load in the euro zone, at 120.1 percent of its gross domestic product. Spain, with wide-scale unemployment and fast-collapsing real estate values, needs a €100 billion bailout for its banks.
Both Italy and Spain have urged the euro zone bloc to allow for steps that would reduce the two countries’ interest rates. Their insistence that discussion of short-term measures take precedence at the summit has delayed approval of a 120 billion-euro ($149 billion) growth pact. Hollande, who had championed the growth pact and is now aligning himself with Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano, has also put France’s endorsement of a deficit-control treaty supported by Germany on hold.
European Union President Herman Van Rompuy struck a conciliatory tone, saying that “Two countries feel very strongly about reaching an agreement on long and short-term measures.”
With pressure from all around the globe on Europe to take “decisive steps” to address the crisis, after overnight meetings ending in the early hours of Friday, European leaders agreed to use the continent’s permanent bailout fund, the European Financial Stability Facility, to recapitalize struggling banks and to create a joint banking supervisory body. In the long term, they also agreed to work to form a “tighter union.
In response to European leaders agreeing to let go of the condition that emergency loans to Spanish banks give preferred creditor status to their governments, the euro surged 1.5 percent early on Friday, its largest intraday advance since November.
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Photo by Eoghan OLionnain