EU Summits 'Won't Rescue Euro, Will Only Buy Time'

Spiegel
October 24, 2011

The EU crisis meetings now underway will at best buy time for the bloc to start tackling its debt problems in earnest. The euro needs fiscal union to survive in the long term -- but how will leaders ever forge such a union if they can't even agree on the most urgent firefighting measures, German commentators ask?

European Union leaders battling to solve the euro crisis made some progress on Sunday at the first of their two summits -- there will be a second one on Wednesday -- but German commentators doubt that they will come up with the "big bang" solution everyone is clamouring for.

After 12 hours of at times ill-tempered talks that once again highlighted gaping divisions on how to rescue the currency, the leaders got closer to agreement on bank recapitalization and on how to leverage their rescue fund to try to avoid bond market turmoil following a Greek debt cut. Final decisions were put off until Wednesday's summit and it remains unclear how much of a hit banks will have to take on a Greek haircut -- 40, 50 or 60 percent.

French President Nicolas Sarkozy backed down after German Chancellor Angela Merkel refused to accept his plan to use unlimited European Central Bank funds to fight the crisis by turning the rescue fund into a bank and letting it borrow from the ECB. Meanwhile, Italian Prime Miniser Silvio Berlusconi was told in no uncertain terms to present a more convincing plan this week to boost growth and lower its debt burden.

Leaders agreed on a framework drafted by their finance ministers for recapitalizing European banks, which regulators say need between €100 billion ($139 billion) and €110 billion ($152 billion) to cope with likely losses on Greek and other euro-zone sovereign bonds.

The aim of the meetings is to reduce Greece's debt burden, make European banks more resilient to a restructuring, improving euro-zone economic governance and boost the firepower of the rescue fund, the European Financial Stability Facility (EFSF).

German newspapers on Monday make gloomy reading, with commentators saying that leaders have let the EU down with ther piecemeal approach towards fighting the crisis over the last 18 months: The measures to be decided on Wedesday won't rescue the euro, they say -- it will only buy time for countries to reduce their debt and reform their economies.

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