German Chancellor Angela Merkel yesterday said that she would work toward a reinforced political union in Europe with willing partner countries even if that meant a two-speed approach.
“We need more Europe ... a budget union ... and we need a political union first and foremost,” Merkel told German public television. “We must, step by step, cede responsibilities to Europe.”
The German leader, who has been criticized for staunch opposition to some proposals to resolve the eurozone debt crisis, added: “We must not remain immobile because one country or another does not want to follow yet.”
EU leaders are also under intense pressure from the public to take action to break the back of the two-year-old crisis at a June 28 to 29 summit in Brussels.
However, Merkel told German television that not all of the bloc’s problems could be solved with one summit meeting.
The German chancellor said she did not believe “that one summit is capable of settling everything in one fell swoop.”
What she wanted to do at the summit was to propose a framework for getting to a stronger political union, she added.
“Budget consolidation and growth are two sides of the same coin,” she said.
Sustainable growth could only come from boosting the competitive positions of all EU members, she added.
“We must, in each European country, confront our respective weaknesses,” Merkel said.
The debt crisis’ current focus is on the Spanish banking sector and Spanish Finance Minister Luis De Guindos said on Wednesday that Madrid would decide how to fill a massive hole in the banks’ finances within two weeks.
Madrid must come up with 80 billion euros (US$100 billion) for bank recapitalizations in the midst of a deep recession brought on by the bursting of a Spanish real-estate bubble.
In London, Chancellor of the Exchequer George Osborne said Britain would want to ensure safeguards were in place to protect its financial sector if the eurozone moves toward establishing a banking union.
In an interview with BBC Radio 4, Osborne also urged the single currency bloc to use its bailout fund to recapitalize Spain’s troubled banks.
“There is no way that Britain is going to be part of any eurozone banking union,” Osborne said. “I think Britain will require certain safeguards if there is a full-blown banking union.”
Osborne said any significant steps toward common bank depositor insurance in the eurozone would require a treaty change, which in turn would need British consent.
In related news. the European Central Bank (ECB) withheld the stimulus of an interest rate cut on Wednesday, keeping up the pressure on eurozone politicians to take decisive action — even as growth predictions worsened and fears intensified that Spain might need help bailing out its banks.
The 23-member governing council left its benchmark refinancing rate unchanged at a record-low 1 percent.
ECB President Mario Draghi cited economic growth forecasts for a gradual recovery this year in justifying the decision not to cut rates this time around. Rate cuts are supposed to help growth by lowering business borrowing cost. However, some analysts said the bank’s expectations of only a 0.1 percent decline over the full year were overly optimistic.
Draghi said the bank would “monitor closely all the developments and we’ll stand ready to act” if necessary. He also said some members of the 23-member council advocated a rate cut.