EUROPEAN CENTRAL Bank president Jean-Claude Trichet has backed tougher economic surveillance as finance ministers prepare to debate demands from the European Commission to open their budgets in Brussels before they do so in parliament.
Amid renewed pressure on the euro, the ministers gather this evening for key meetings on the sovereign debt crisis in the single currency area.
As Greece prepares to draw down some €8.5 billion in emergency EU aid to repay a debt due on Wednesday, confrontation also looms over British resistance to new rules to regulate hedge funds.
With newly installed British chancellor George Osborne preparing to attend his first EU meeting since taking office last week, informed sources said yesterday that Spain’s presidency of the EU intended to proceed with plans for a vote on the new regulations.
Britain opposes the hedge fund plan and Ireland has reservations about aspects of it, but the measures are strongly supported by France and most other member states.
The meeting of the 16 euro-group ministers this evening will be the first since they agreed to create a €750 billion rescue fund for distressed members of the currency a week ago. It will also be the first since the European Commission said the ministers should review each other’s draft budgets before they go to parliament and direct governments to bring forward revised plans “in the case of obvious inadequacies”.
The gathering – and a meeting tomorrow of the wider group of 27 finance ministers – comes after market euphoria over the €750 billion EU-International Monetary Fund rescue fund gave way to worries about recovery prospects of the single currency area.
While many member states agree on the principle of deeper economic co-ordination in the euro area, the commission’s proposal to bypass parliaments in the first phase of the “peer review” process raised varying degrees of opposition in Paris, Berlin and other capital cities.
However, Mr Trichet gave implicit support to the effort when he called in a weekend interview for far-reaching improvements in the way the euro area is managed.
“There is a need for a quantum leap in the governance of the euro area,” he told German magazine Der Spiegel. “There needs to be major improvements to prevent bad behaviour, to ensure effective implementation of the recommendations made by ‘peers’ and to ensure real and effective sanctions in case of breaches.”
He also called for better monitoring of how countries respected the stability and growth pact, as the euro area’s fiscal rulebook is known.
The French government responded to the commission’s plan by saying the power of parliament in the budgetary process remained sacrosanct.
German chancellor Angela Merkel said the initiative was a step in the right direction but changing the European treaties was the only way to enforce the discipline she wanted to see.
Swedish prime minister Fredrik Reinfeldt, whose country is not in the euro, has expressed opposition to the commission’s proposal.
“That this should concern all countries is something we find a little strange,” Mr Reinfeldt said last week, suggesting Sweden should be treated differently because of its relatively solid public finances.
Austria however indicated an appetite for much tougher surveillance. Austrian finance minister Josef Pröll suggested the EU should limit debt in member states.
Stability fund €750bn has merely ‘bought time’
GERMAN CHANCELLOR Angela Merkel has warned that the €750 billion euro-zone stability fund has merely “bought time” for the European Union in its battle against currency speculators.
Ahead of today’s EU finance minister meeting, the German leader said long-term budget reform was unavoidable if the euro zone was to return to an economic even keel. “Recent speculation against the euro has only been possible because of huge differences in member state debt levels and economic strengths,” Dr Merkel told Germany’s Trade Union Confederation (DGB).
“We have done nothing more than to buy time until we have brought order to competitive differences and to individual euro country budget deficits.” The German leader acknowledged there was growing pressure on her to punish speculators through tougher financial market regulation. She had appealed to the European Commission, in conjunction with French president Nicolas Sarkozy, for tighter regulations on derivative trading and short selling. “This is urgent,” she said, “and I will make sure that things speed up on this front”.
After losing a key state election last week, Dr Merkel faces a crucial credibility test in Berlin this week when MPs vote on Germany’s estimated €123 billion share of the €750 billion fund.
DGB head Michael Sommer is the latest to join the growing call in Germany for a financial market transaction tax.
“Our patience with greed is at an end,” he said yesterday. Speculators would sooner or later attack Spain, Portugal, Ireland and Italy – and finally Germany. “It’s time we put a stop to the gamblers’ game.”
The German leader said she would “not oppose” a financial transaction or “Tobin” tax if implemented, but said the chances of success were slight.
“We have to see what is possible to implement internationally. There is no point in curbing market activity here if speculation continues in Chicago or New York.” Instead she was open to a transaction tax on profits and bonuses levied by the International Monetary Fund.
With her continued opposition to a statutory minimum wage, Dr Merkel came bearing no gifts of note to the annual DGB meeting, a federation of eight unions with 6.3 million members.
Dr Merkel's CDU is opposed to union demands for a €8.50 an hour minimum wage, saying it would undermine an industry's tariff autonomy. DEREK SCALLY