GERMAN CHANCELLOR Angela Merkel said she will push for treaty changes to bolster the EU’s powers to keep the finances of distressed member states in check, creating potential conflict with her European partners. Her remarks followed agreement to extend bilateral loans to Greece if needed.
While in private diplomats and officials in the European Commission said there was no appetite to reopen the union’s basic legal text, Dr Merkel insisted it would be difficult to avoid changes to the treaty if the EU wanted to learn from the Greek crisis.
The chancellor said the rescue net for Greece would provide the country with cover, but that euro zone countries would not allow the destabilisation of the euro. Their plan was a sign of solidarity, she told reporters.
Dr Merkel resisted signing up to a rescue mechanism for weeks, but the final package largely reflected the conditions set by her administration. Now she says treaty changes are required to develop a more robust framework for resolving financial crises in the euro zone.
EU leaders have set up a task force to examine the issue but said only that its mandate would be to explore “all options” to reinforce the legal framework through which the commission monitors member states’ finances. The failure to explicitly refer to treaty change reflects member state unease with such an option, said a diplomatic source.
Although Taoiseach Brian Cowen’s response was “we have to wait and see” when asked whether treaty change would be needed to strengthen the union’s budgetary surveillance powers, it is widely acknowledged the Government would not like to go down that road.
The rescue plan is made up of co-ordinated bilateral loans from euro member states and the International Monetary Fund (IMF). Euro group leaders said the mechanism “has to be considered ultima ratio, meaning in particular that market financing is insufficient”.
Any loans would be decided unanimously by euro members and any request from Greece would go simultaneously to the European and IMF authorities.
“The objective of this mechanism will not be to provide financing at average euro area interest rates, but to set incentives to return to market financing as soon as possible by risk-adequate pricing. Interest rates will be non-concessional, ie not contain any subsidy element,” the statement said.
The euro rallied on news of the deal, which was described by European Central Bank chief Jean-Claude Trichet as a workable solution. “I am confident that the mechanism decided today will normally not need to be activated and that Greece will progressively regain the confidence of the market,” said Mr Trichet, who had resisted IMF involvement but toned down his stance after the deal was done.
However, ECB vice-president elect Vitor Constancio expressed serious reservations yesterday about involving the Washington-based fund.
Commission chief José Manuel Barroso urged international markets, who relentlessly attacked Greece over its weak public finances, to take account of the deal. “I now hope that the financial markets act on fact, not on fiction.” Mr Barroso said he will ask global leaders at a G20 summit in June to introduce a special tax on banks to meet winding-up costs in case of emergency.
“I think we should push the G20 forward addressing the burden of bank repair, including through levies on banks to feed resolution funds and derivatives,” he said.
European Council president Herman Van Rompuy described the deal as an “extremely clear” political message. “It’s a mixed mechanism but with Europe playing the dominant role.”