European Union facing a fight for survival over spiraling debts in eurozone countries
BRUSSELS (AFP) – The head of the European Union warned yesterday that the 27-nation bloc will not survive if it fails to overcome a debt crisis plaguing euro currency governments. Just hours before a meeting of finance ministers in Brussels to grapple with an exploding debt crisis that has already brought Greece to its knees, and now threatens Ireland and Portugal, European Council President Herman Van Rompuy said that the EU and eurozone were in danger as a result of alarm on financial markets. «We all have to work together in order to survive with the eurozone, because if we don’t survive with the eurozone, we will not survive with the European Union,» he said in a speech. He said he was «very confident» the EU would overcome the crisis, thanks to «courageous measures» taken by states «to reduce expenses at a time of populism, despite massive protests on the street and knowing they risk electoral defeat.» Van Rompuy’s stark warning raises the stakes after an admission by Ireland that it was holding talks about a possible rescue six months after international partners had to rush to aid Greece with a 110-billion-euro bailout. Portugal has also warned that it is at «high» risk of needing financial support, unable to borrow money on open markets other than at prohibitive rates, partly because tension over Ireland is increasing pressure on other weak eurozone members. Greek Prime Minister George Papandreou, also facing new problems over conditions attached to the rescue for Greece, has said he has support from French President Nicolas Sarkozy to reschedule bailout repayments. Weakest links The three countries are only the weakest links in a chain of debt coursing through the 16 nations that share the euro currency, with almost every other member of the European Union bursting at the fiscal seams. Ireland «is under pressure from some other EU politicians and even the European Central Bank to consider requesting funds to provide further reinforcement for its banking system and so reduce contagion risks,» said Julian Callow of London-based Barclays Capital Research. He said that from the ECB’s perspective, a 440-billion-euro European Financial Stability Fund «can be used to support banks, provided that the funding is requested by governments and channeled via them.» Despite an EU official telling AFP exactly the opposite on Monday, stressing that the loan guarantees are not available for banks, Callow warned that «Ireland has the biggest skew in terms of requesting ECB financing,» signaling 130 billion euros of demand on the Irish central bank in October. Analysts expect the ECB to announce «further steps toward normalization of its money market operations» at the start of December, Callow added. Ireland’s public deficit this year is set to pass 30 percent of gross domestic product, 10 times the permitted EU limit and double last year’s Greek deficit. Its plight – which stems from Irish banks’ massive overexposure to busted property markets – is causing consternation among those who would have to guarantee rescue loans. While drawing up massive new spending cuts to be announced within weeks, Ireland has sought desperately to resist the onslaught from euro doubters. «Ireland is making no application for the funding of the state because clearly we are pre-funded right up to the middle of next year,» Prime Minister Brian Cowen said late Monday. In a significant development, Northern Ireland’s Sinn Fein leader Gerry Adams announced at the weekend he was resigning from British politics. He said he wanted to seek office in the Irish Parliament and campaign for a different policy response to the crisis. Aid at the ready Experts say Dublin will need about 70 billion euros, and Eurogroup head Jean-Claude Juncker along with the ECB, the European Commission and the International Monetary Fund each say they are ready to act «as soon as possible» if asked. Others are feeling the heat – with Spain also under pressure going into a bond sale yesterday. Twenty-four of the EU’s 27 states are currently running deficits way above the bloc’s limits. Bond yields for Ireland, Portugal and Greece all remain high. The speculation is hurting the euro, which may be a minor blessing in disguise for exporters, and markets will again be watched closely over the course of the day. Spain insists it is not in same situation as Ireland MADRID (AFP) – Spanish Finance Minister Elena Salgado said yesterday there is «no reason» to compare Spain with the debt-stricken economies of Ireland and Portugal. «The situation in Spain is and will continue to be completely different,» she told reporters as she entered parliament, adding there is «absolutely no reason» to compare the situation in the two countries with Spain. «We have adopted [austerity] measures in May and we are applying them.» In a bid to shore up its public finances, the government in May passed a 15-billion-euro (20.5-billion-dollar) austerity package that included an average state employee salary reduction of 5 percent and a pensions freeze. That was on top of a 50-billion-euro package of spending cuts announced in January designed to slash the public deficit to the eurozone limit of 3 percent of gross domestic product by 2013 from 11.1 percent last year. «Our budget execution figures show that we are on track to meet our deficit goals, the budget for 2011 will be approved and our economy is beginning to recover,» said Salgado. Spain’s Socialist government has negotiated the support of two small regional parties to secure the passage of its budget for next year, which pledges to reduce state expenditure next year by 7.9 percent to 122 billion euros, excluding financing costs.
