Eurozone integration drive speeds up ahead of summit

June 27, 2012 | 11:13
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Top eurozone finance ministers meet in Paris on Tuesday in a last-minute effort to ensure that a summit this week launches the EU on far deeper integration and stops debt contagion from engulfing Spain.

Greek business leader Dimitris Daskalopoulos (left) talks with European Union President Belgian Herman Van Rompuy at a meeting in Brussels on Tuesday. Top eurozone finance ministers meet in Paris on Tuesday in a last-minute effort to ensure that a summit this week launches the EU on far deeper integration and stops debt contagion from engulfing Spain. (AFP Photo/John Thys)

Expectations are high and tension is growing ahead of the Brussels summit on Thursday, with financial markets wary the outcome might again be disappointing in terms of credibility.

French Finance Minister Pierre Moscovici said the high-stakes gathering in Brussels would be anything but "banal" and would tackle real issues while Italian Prime Minister Mario Monti vowed to work overtime to save the euro.

"We cannot allow this extraordinary European piece of work to which Italy has always contributed to go bust," Monti said in a speech to the Italian parliament.

The pressure on the EU is huge, with even the United States pressing for more steps to stabilise the world economy at Thursday's summit and markets holding out to see whether European leaders will this time deliver.

To save the single currency, the European Union's top officials want to give EU authorities more power over eurozone national budgets, and to establish central banking supervision across the single market, a top level report said.

A report drawn up by EU and eurozone leaders Herman Van Rompuy, Jose Manuel Barroso, Jean-Claude Juncker and Mario Draghi proposes to move "over the next decade" towards greater centralised power for the "financial sector, for budgetary matters and for economic policy."

In the report, EU president Van Rompuy said: "The euro-area level would be in a position to require changes to (national) budgetary envelopes if they are in violation of fiscal rules."

EU Commission president Barroso said in a speech that the dramatic shift being considered "should start with steps that can be taken immediately without a treaty change" such as banking union.

He said: "These would lead to longer term steps that may require such changes."

Some eurozone nations meanwhile seemed to be preparing the political ground at home for some sort of deal which would require giving up more powers to Brussels.

French junior Budget Minister Jerome Cahuzac told BFM TV that Paris, like Berlin, Rome and Madrid, would concede sovereignty over the national budget.

"This is what we are talking about, budget solidarity in Europe which implies that not only that the French budget, but also the German, Italian and Spanish budgets be subjected to a review by all our partners," Cahuzac said.

Spanish Finance Minister Luis de Guindos, who as was due to attend the meeting in Paris later Tuesday with his counterparts from France, Germany and Italy, reiterated his call for tighter fiscal union in Europe.

"The more euro and the more Europe there is, the better it will be for our country," he said.

Monti, who heads a government of technocrats, called on Italian lawmakers to back his efforts as it was important that, at the Brussels summit, parliament and the government are seen as working together.

Athens took a step forward meanwhile, naming former banker Yannis Stournaras as the country's new finance minister after his predecessor stepped down unexpectedly due to health concerns.

The 17-nation eurozone is struggling to convince markets it can get to grips with spreading crises.

On sovereign debt markets, Spain and Italy had to pay sharply increased rates at bond auctions as investors demand higher prices for the risks involved.

And stocks in London, Frankfurt and Paris ended flat on Tuesday after big falls on Monday. Milan dropped another 1.11 percent and Madrid lost 1.44 percent.

The latest blows to investor sentiment were a downgrading of 28 Spanish banks, hours after Madrid officially requested help for its lenders, and a rescue call from eurozone member Cyprus, the fifth nation in the currency bloc to ask for a bailout.

Eurozone finance ministers will hold a conference call on Wednesday to discuss the aid requests from Spain and Cyprus, a diplomat told AFP.

The source said that the Eurogroup had promised "to rapidly examine the requests from Spain and Cyprus, and that's what it will do."

Eurozone credibility depends on cooperation by its two biggest members, Germany which wants financial discipline and France which wants the emphasis on measures for growth.

German Chancellor Angela Merkel was expected in Paris on Wednesday for final consultations with French President Francois Hollande before the EU summit.

While neither has sought to mask key differences of opinion, both are aware that a failure to compromise could open a dangerous new chapter in the eurozone crisis.

Billionaire hedge fund investor George Soros, who once profited massively on the currency markets by betting against EU policy, said Germany would never give up on the euro because the consequences would be too dire.

"Because this is the case, Germany will always do the minimum to preserve the euro," Soros said.

But the result will be a Europe in which Germany is "hated and resisted, because it will perceived as an oppressive power," the rich philanthropist warned.


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