ANALYSIS:Solidarity with countries in financial trouble was the dominant theme at the EU summit, writes JAMIE SMYTHin Brussels
EU LEADERS have offered €75 billion in new loans to the International Monetary Fund (IMF) to help bail out countries in financial trouble.
They have also pledged to double the emergency funding on offer to EU states that are not members of the euro zone to €50 billion as a “sign of European solidarity” during the worst economic crisis since the war.
“Europe is showing it’s up to the challenge,” said European Commission president José Manuel Barroso, who tabled the proposal to boost the union’s emergency funding reserve from €25 billion to €50 billion shortly before the EU summit began in Brussels.
Battered by the economic crisis,Hungary and Latvia have already tapped the EU’s emergency reserve for €10 billion and with Romania recently joining the bailout queue there had been fears the existing fund could run out of cash. The decision to double the size of the fund followed a call for more support for the EU states in the central and eastern European region by Hungary at an EU emergency summit earlier this month.
“This was as much to show our partners in central and eastern Europe that the EU is ready to provide solidarity,” said Luxembourg prime minister Jean-Claude Junker, who indicated that the EU was ready to act in support of states in the region, if required.
The Czech Republic, which chairs the rotating EU presidency, had initially expressed nervousness over the proposal because it feared international markets would interpret it as a sign of weakness for the region. But concerns that it could prove legally difficult to recapitalise the emergency reserve fund once the European Parliament is dissolved for elections in May, persuaded EU leaders to sanction the new funds, said one EU diplomat.
EU leaders also set themselves a June deadline for deciding how to reform Europe’s financial supervisory and regulatory framework.
The summit conclusions called for tighter regulation to avoid a repeat of the crisis, urging “appropriate regulation and oversight of all financial markets, products and participants that may present a systemic risk”.
They said a recent report published by former governor of the French Central bank Jacques de Larosière at the invitation of the EU executive should form a basis for reforming the system with first decisions taken at the June European Council meeting.
Within the EU there is broad support for tightening regulation in the financial sector but there are also differences of opinion over the role for pan-European supervision.
EU officials say Britain, Ireland and Luxembourg, three big EU financial centres, have expressed concerns about elements of the report, which would allow member states to decide by qualified majority voting on key parts of the new supervisory system.
British chancellor Alisdair Darling has called for independent experts to run the new framework rather than devolve power directly to Brussels. Britain, which is chairing the G20 talks in London in two weeks, is pushing hard for global rather than EU regulation.
“There is a certain difference of culture in Europe regarding regulation and it is true the European dimension is often not stressed in Britain,” said one senior EU official, who nevertheless stressed in the crisis there was now greater convergence than ever before.
One of the key goals of the summit was to agree a single EU mandate to take to the G20 meeting that aims to shape the future international governance of the finance sector. EU leaders agreed to provide €75 billion in new loans for the IMF to help it prop up countries that get into trouble. They have also supported a reform of the governance of the IMF to give developing countries, such as China, a bigger say in how it is run.
But they refused to support US calls for Europe to spend more to try to kick-start the global economy. Citing existing stimulus efforts worth €400 million, EU leaders instead said they favoured waiting to see if existing measures had an effect.
This divergence of opinion between the US and EU on stimulus efforts, combined with subtle differences in EU states’ positions on reform of financial supervision, will make an overarching deal at the G20 on a new global financial framework difficult to achieve.