The 17 finance ministers of the countries that use the euro converged on EU headquarters yesterday in a desperate bid to save their currency — and to protect Europe, the US, Asia and the rest of the global economy from a debt-induced financial tsunami.
The ministers were discussing ideas that would have been taboo only recently, before things got as bad as they are: Countries ceding fiscal sovereignty to a central authority; some kind of elite group of euro nations that would guarantee each other’s loans — but require strong fiscal discipline from anyone wanting membership.
German Chancellor Angela Merkel reiterated her support yesterday for changes to Europe’s current treaties in order to create a fiscal union, that will include binding and enforceable commitments by all euro countries.
Merkel said that changing the treaties — usually a lengthy procedure — would not be easy because not all of the EU’s members “are enthusiastic about it.”
However, she dismissed reports that the eurozone or some nations within the bloc might go ahead with a swifter treaty between governments.
The fear is that the crisis — which has already forced bailouts of Greece, Ireland and Portugal — could engulf bigger economies such as Italy, the eurozone’s third-largest. If Italy were to default on its debt of 1.9 trillion euros (US$2.5 trillion), the fallout could spell ruin for the euro project itself and send shockwaves throughout the global economy.
Even countries outside the eurozone were ratcheting up pressure on the ministers to find a solution. US President Barack Obama, meeting with top EU officials on Monday, said a European failure to resolve its debt crisis would complicate his own efforts to create jobs in the US And even Poland, historically wary of German dominance beyond its borders, appealed for help.
“I will probably be first Polish foreign minister in history to say so, but here it is,” Polish Foreign Minister Radek Sikorski said in Berlin. “I fear German power less than I am beginning to fear German inactivity. You have become Europe’s indispensable nation.”
In a reminder of the urgency, Italy’s borrowing rates shot up yesterday to rates above 7 percent, an unsustainable level on a par with rates that forced the other countries to seek bailouts. Markets rose generally for the second day on the expectation that the enormous pressures on European ministers would produce results.
At the top of yesterday’s agenda was finding a means to more fully integrate the eurozone’s disparate nations — ranging from powerful Germany to tiny Malta — both politically and financially. And the ministers must do it fast, without the delays caused by democratic niceties like referendums that have led many EU reforms to take years to implement.
French Finance Minister Francois Baroin said yesterday that countries should integrate their budgets more closely and monitor each other’s spending.
“We have to modify eurozone governance,” Baroin said. “We definitely have to move toward more integrated budgetary consolidation, fiscal convergence with our neighbors.”
The 17 ministers are expected to discuss jointly issuing so-called eurobonds — an all-for-one, one-for-all way of having the different countries guarantee each other’s debts. Right now each nation issues its own bonds, meaning that while Italy pays above 7 percent, Germany pays about 2 percent.
Having stronger countries such as Germany stand behind the general European debt would lower Italy’s borrowing rates — and perhaps avoid a debt spiral that leads to a national bankruptcy. At the same time, it would raise Germany’s cost of borrowing and that is why Germany has been fiercely opposed to the eurobond proposal.
A French official said yesterday that France might propose joint bonds among a subset of eurozone countries — those with “AAA” credit ratings — although Germany has said it opposes the idea.
The French official said discussions about such so-called “elite bonds” is under discussion ahead of a summit of EU heads of government in Brussels next week.
Proponents of elite bonds say the proceeds could be used to help the eurozone’s weaker countries deal with their debts. Critics say further fragmenting the eurozone into strong countries and weak countries would benefit no one.
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