German Chancellor Angela Merkel resisted pressure on Friday for common eurozone bonds or a more flexible use of Europe’s rescue funds, but agreed with leaders of France, Italy and Spain on a 130 billion euro (US$163.5 billion) package to revive growth.
After four-way talks in Rome’s Renaissance Villa Madama, Italian Prime Minister Mario Monti said the EU should adopt pro-growth measures worth about 1 percent of the region’s GDP at a crucial summit next week.
However, the three other leaders made no perceptible progress in pushing Merkel, who leads Europe’s most powerful economy and the main contributor to its rescue funds, toward mutualizing Europe’s debts or using existing bailout resources more flexibly.
“Growth can only have solid roots if there is fiscal discipline, but fiscal discipline can be maintained only if there is growth and job creation,” Monti said after talks that lasted just an hour and 40 minutes.
The measures, already in the works in Brussels, include increasing the European Investment Bank’s capital, redirecting unspent EU regional aid funds and launching project bonds to co-finance major public investment programs. No new steps were announced on Friday.
The four leaders did agree to move ahead on creating a tax on financial transactions even though not all EU members will be on board. About a dozen EU states support setting up the so-called “Tobin tax,” more than the nine required to go ahead as a group within the EU, a French presidential source said.
Merkel made no mention, however, of any move toward mutualizing past eurozone debt or new borrowing.
French President Francois Hollande voiced impatience with Berlin’s reluctance, saying it should not take 10 years to create jointly underwritten euro bonds.
He said greater solidarity was needed among member states before they abandon more sovereignty to EU institutions.
“I consider euro bonds to be an option ... but not in 10 years,” Hollande said in a direct challenge to Merkel. “There can be no transfer of sovereignty if there is not an improvement in solidarity.”
The German position essentially amounts to the reverse. Merkel says that members of the 17-nation currency union must transfer control over national budget and economic policies to Brussels before Germany would consider common debt issuance.
“Liability and control belong together,” Merkel said, citing as an example that EU treaties ruled out letting eurozone rescue funds lend directly to Spanish banks because only the Spanish state could enforce conditions on the banks.
That plan is expected to include the first steps toward a banking union, starting by putting the European Central Bank (ECB) in charge of supervising large cross-border eurozone banks.
Without progress on bank sector integration or other financial stability measures, France is not ready to commit to ratifying an EU budget discipline pact agreed earlier this year, French diplomatic sources said.
Dangerously high Spanish borrowing costs eased a little on market hopes for initiatives at the summit.
The ECB took a supportive step on Friday, relaxing its collateral rules to let financial institutions pledge a wider range of assets in exchange for cash.