EU LEADERS have rejected a plea for a €190 billion aid package for central and eastern Europe as Hungary warned of an emerging political and economic crisis in the region.
Taoiseach Brian Cowen also refused to speculate yesterday on whether the Government would have to rely on a German bailout to ride out the financial crisis at home.
“There have been various comments made in Germany. I think what it simply indicates is the broad German position that has always been very pro-European,” said Mr Cowen when asked about chancellor Angela Merkel’s comments last week that Germany would be willing to help Ireland and other euro-zone states which get into difficulty.
Speaking after an emergency summit of EU leaders in Brussels, Mr Cowen said Ireland and other euro-zone states were already benefiting from extra liquidity provided by the European Central Bank (ECB). But he refused to be drawn on whether any German aid package was needed.
He said EU leaders did not discuss a controversial idea to set up a common euro-zone debt agency to issue bonds on behalf of a group of euro-zone states. This idea has been floated as a way to help states such as Ireland and Greece, which pay high interest rates to borrow money on international markets.
The main focus at the summit was the deteriorating situation in certain new members states in central and eastern Europe. Hungarian prime minister Ferenc Gyurcsany warned the economic crisis risked establishing a new iron curtain between east and west on the 20th anniversary of the fall of the Berlin wall.
“At the beginning of the 1990s we reunified Europe. Now it is another challenge – whether we can unify Europe in terms of financing and its economy,” he said at a meeting of the leaders of nine new EU member states prior to the emergency summit.
Mr Gyurcsany tabled a proposal for a €190 billion rescue plan, which would be co-ordinated by the EU and international institutions such as the World Bank and International Monetary Fund.
The proposal presents an alarming picture of the economic health of the entire region, warning that a failure to act by EU leaders could cause a “second round of systematic meltdowns that would mainly hit the euro-zone economies”.
It says central Europe’s financing needs in 2009 could total €300 billion, equivalent to 30 per cent of the region’s gross domestic product. Partial failure to refinance could lead to contractions in economic activity and large-scale defaults in the region. The resulting crisis would trigger political tensions and immigration pressures, says the proposal, which notes that 100 million people live in EU states in the region.
Dr Merkel rejected the Hungarian proposal insisting that one-size-fits-all bailouts were unwise as Hungary’s dire situation could not be compared to other states in the region.
“Saying that the situation is the same for all central and eastern European states, I don’t see that,” said Dr Merkel, who also opposes loosening the criteria needed to join the euro.
Poland and several other new member states have lobbied hard to have economic rules requiring two years of currency stability before a state can be admitted to the euro zone relaxed. By gaining early entry these states would be able to benefit from additional ECB liquidity.
But the European Commission fears bending the rules would only weaken the euro.
EU leaders also warned that protectionism was “no answer to the current economic crisis”, reflecting growing fears that member states will introduce policies to protect jobs at home and undermine the EU single market.
A public row between French president Nicolas Sarkozy and Czech prime minister Mirek Topolanek over a French plan to bail out its car industry had overshadowed the lead up to the summit. But in a last-minute compromise Mr Sarkozy amended the plan by removing a clause requiring French firms not to outsource jobs abroad.