European Chiefs Set Growth Pact

Merkel resists push for debt plan; growth plan to total about 1% of region’s output.

German Chancellor Angela Merkel parried attempts to get her to accept more flexible use of the euro-region’s rescue funds and collectively financing debt, while agreeing with leaders of Italy, Spain and France on a proposal to spur economic growth.

In a meeting in Rome, Merkel, Italian Prime Minister Mario Monti, French President Francois Hollande and Spanish Prime Minister Mariano Rajoy said they would lobby their European Union partners to accept a growth plan worth as much as 130 billion euros ($162 billion), or about 1 percent of the euro-region’s economic output. They didn’t give specifics about the plan or how it would be financed.

European leaders are looking for a way out of their almost three-year old debt crisis that has forced four countries to seek bailouts. Leaders are racing to come up with a plan by a summit on June 28-29 to convince the investors that they can salvage the region’s monetary union.

“We want to make clear that we’re going to do everything to fight for the euro, as our currency from which we all profit, and for its future -- as it has been a stable currency for the past 10 years,” Merkel said. “For this we have to resolve a number of problems, some of which we’ve already done.”

In an interview today with a group of European newspapers including Le Monde and El Pais, Monti said the weeklong run up to the summit may prove critical to the survival of the euro. Should leaders fail to produce a blueprint for a tighter fiscal and financial union, there will “be progressively greater speculative attacks” on the currency bloc’s “weaker” nations.

 

Monti Proposals

Prior to the meeting, Monti had put forth his own proposal for a banking union, including a European supervisor and a deposit guarantee fund. He also pressed for nations to give up some autonomy over their budgets. He called for a mechanism to help bring down surging borrowing costs for nations that are meeting their fiscal goal. Monti also favors euro-area countries collectively selling debt.

There was little sign at today’s four-way press conference that Merkel backed the more flexible use of the existing bailout mechanism.

Hollande, who backs the so-called euro bonds, signaled as much when he said “euro bonds should be a plan, for in 10 years when there will be a union, an integration, euro bonds will be a useful instrument for Europe.”

The four leaders did agree for the need of a financial-transaction tax, that could be used to fund future bank rescues, Merkel said.

Rajoy, who on June 9 said his government would request a much as 100 billion euros in aid for its ailing banks, said he was pleased with the outcome because the leaders agreed to “put into place all the mechanisms necessary to achieve financial stability in the EU. Rajoy didn’t give any details.



Bloomberg News

 

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