Finance chiefs of the eurozone’s four biggest economies will hold last-minute talks in Paris on Tuesday evening to try to narrow differences on the currency area’s future after Cyprus became the fifth member to request a bailout.
Ministers from Germany, France, Italy and Spain will discuss how to manage the crisis in the short term and proposals for closer long-term fiscal and banking integration to prepare for a European Union summit starting on Thursday.
Financial markets are on edge and international pressure for decisive action is rising but the summit, the 20th since the bloc’s debt woes began in early 2010, is not expected to produce a lasting solution to the crisis.
“Tomorrow there is a meeting, which will be very important, between (French President) Francois Hollande and (German Chancellor) Angela Merkel, and this evening I will receive the finance ministers… along with the European Commissioner,» French Economy Minister Pierre Moscovici said.
A report prepared by the EU’s top four officials suggests the eurozone could create a treasury for the single currency and issue euro bonds in the medium term as the final stage of a fiscal union.
However Merkel, who leads Europe’s biggest economy and the main contributor to its bailout funds, again ruled out on Monday any sharing of debt or bank liabilities as «economically wrong and counter-productive».
The finance ministers’ session was called at such short notice — in an apparent rush to repair damage from a public rift between Merkel and leaders of the other three states when they met in Rome last Friday — that one finance minister’s press staff only learned of the invitation on Tuesday morning.
Investors want to see bold steps to underpin the European currency union and halt the inexorable contagion from one debt-stricken country to another.
The Brussels summit is expected to agree on a growth package pushed by France worth around 130 billion euros ($162 billion) in infrastructure project bonds, reallocated regional aid funds and European Investment Bank loans.
Leaders will also discuss proposals for a banking union but while they are likely to agree to give the European Central Bank power to supervise big cross-border banks, Merkel is resisting any joint deposit guarantee or common bank resolution fund.
In Washington, US Treasury Under Secretary Lael Brainard, who has been handling financial diplomacy with Europe, urged EU leaders to put «more flesh on the bone» of their plans for tackling the debt crisis at this week’s summit.
“The particulars on how they go forward and how they design their firewall, how they design their policies, those are things that at the end of the day sit with those European leaders,» she said in an interview with Reuters. «We’re all looking forward to seeing some of the specifics.”
Jim O’Neill, chairman of Goldman Sachs Asset Management, told Reuters the eurozone crisis could be solved easily if Merkel and other leaders showed the political will.
“The euro crisis is in some ways mind-bogglingly simple to solve … because it isn’t economics, it’s politics,» O’Neill told Reuters in an interview.
“If Angela Merkel and her colleagues stood there together with the rest of the euro area … and if they behaved as a true union this crisis would be finished this weekend,» he added.
The euro area had no current account deficit with the rest of the world, did not need external financing, had a lower debt-and-deficit-to-GDP ratio than the United States or Japan, he said. «And yet we have this almighty mess.”
The EU’s top four officials — European Council President Herman Van Rompuy, European Commission President Jose Manuel Barroso, European Central Bank President Mario Draghi and Eurogroup chairman Jean-Claude Juncker — circulated proposals to eurozone leaders ahead of the summit.
“In a medium-term perspective, the issuance of common debt could be explored as an element of such a fiscal union and subject to progress on fiscal integration,» said the report, obtained by Reuters.
“Steps towards the introduction of joint and several sovereign liabilities could be considered, as long as a robust framework for budgetary discipline and competitiveness is in place to avoid moral hazard and foster responsibility and compliance,» it said.
The EU officials proposed a «criteria-based and phased» approach towards issuing common debt, in which progress in the pooling of decisions on budgets would be accompanied with commensurate steps towards the pooling of risks.
“Several options for partial common debt issuance have been proposed, such as the pooling of some short-term funding instruments on a limited and conditional basis, or the gradual roll-over into a redemption fund,» it said. [Reuters]