23 June 2010
At the 17 June EU summit, EU leaders were determined to bring forward a message of unity after months of “crisis meetings” over the eurozone debt problems. They were also eager to show the world that, despite all the difficulties, there are still countries that show confidence in the EU and the eurozone and want to join them! It was decided that the EU would start the accession negotiations with Iceland, while Estonia would join the eurozone on 1 January 2011, thus becoming the 17th EU Member State using the shared currency euro. More importantly, the news that Chinese and Greek companies were signing multi-hundred million shipbuilding and construction contracts with the Chinese government determined to “encourage Chinese businesses to come to Greece to seek investment opportunities,” was perhaps a clear indication that confidence in Europe remains.
EU leaders also adopted the EU’s 10-year strategy for jobs and growth – “Europe 2020” – setting headline targets in various fields, for example, 75% employment rate for men and women (male employment is currently 76%, while female employment rate is only 63%), and the reduction in greenhouse emissions of 20%. The hope is that “the strategy will help Europe recover from the crisis and come out stronger (…) by boosting competitiveness, productivity, growth potential, social cohesion and economic convergence”.
Much of the time, however, was spent on dealing with short and medium-term financial issues. EU leaders tried to find a common ground for the upcoming G20 meeting in Toronto, Canada (26-27 June). Following the German-French initiative, the summit gave a broad mandate to push ahead with a system of national bank levies, which should ideally be implemented in all G20 nations. The idea is to “ensure fair burden-sharing and to set incentives to contain systemic risk,” says the final communiqué of the Council. It would be designed to finance the rescue of banks in the event of future crises. However, even within the EU there was no consensus about this (the Czech Republic reserved “the right not to introduce these measures”) and the proposal was not spelled out in detail, saying only that this should be “explored and developed” together with other G20 countries. Canada, China and Brazil, whose banks suffered much less during the 2008 global financial crisis, may however have reservations about this.
Besides, France and Germany failed to push through their proposal on financial transaction tax, with the final communiqué stating only that such possibility “should be explored and developed further”. This idea is also expected to face fierce opposition in the G20. German Chancellor Angela Merkel said that, in case of rejection, the EU would have to consider implementing alone (and, very likely, without Britain and some EU countries outside the eurozone). This was reaffirmed by Mr Sarkozy, saying that France and Germany were “ready to put it in place, even if other European governments have problems with it.”
Still on the financial sector, EU leaders agreed to make public the bank stress tests (these measure “the overall resilience of the banking sector to shocks” and also “the dependence of EU banks on public support and on the amount of capital available for further lending”), currently being carried out by the Committee of European Banking Supervisors on the EU’s 25 biggest banks. The results are to be published in the second half of July. This was particularly advocated by Spain, trying to repel the rumours dominating the press headlines and financial newswires that it was on the brink of seeking a bailout. Spanish Prime Minister José Luis Rodríguez Zapatero emphasized that “there’s nothing better than transparency to demonstrate solvency, to give confidence and to leave all these unfounded rumours behind us.”
The leaders also agreed on the need for “a stronger and more demanding economic government”, in words of Mr Zapatero, meaning closer policy coordination and tighter financial regulation. The sanctions for countries that breach EU budgetary rules would be based on “levels and evolutions of debt and overall sustainability” rather than absolute figures, in order to avoid punitive sanctions on many of the Member States. Indeed, under current rules, twelve of 27 Member States would be found breaching the Stability and Growth Pact, under which the debt has to be less than 60% of GDP.
However, differences still linger. Mr Sarkozy said: “Nothing has been decided definitively. This is only the beginning.” While the French President has been pushing for a stronger economic governance of the eurozone, he has finally agreed with Chancellor Merkel, who, fearing the politicisation of the European Central Bank and monetary policy, maintains that the new arrangements should concern all 27 Member States. This, conversely, is opposed by Mr Cameron. His priorities in the summit were to ensure that penalties for breaching the EU’s rules would not apply to non-eurozone countries and that peer review of member state budgets would not mean that the British budget would have to be first submitted to Brussels, even before Westminster. To his liking, the final communiqué mentioned that the new peer review system will “take account of national budgetary procedures”.
While the details are still contested, the modalities of implementation will be clearer on 30 June, when the European Commission is due to outline the legislative proposals on budgetary discipline and coordination. Separately, in October, the special task force led by the President of the European Council, Herman Van Rompuy, will come out with a report and recommendations on the economic governance.
Sources and links to further information:
- “Merkel, Sarkozy renew call for tougher regulation ahead of G20,” EurActiv, 22 Jun 2010
- “EU needs persuasion skills at G20 summit,” EUobserver, 21 Jun 2010
- “EU leader applauds harmony at summit,” Financial Times, 18 Jun 2010
- “Setbacks for Merkel at the European Union Summit,” Spiegel Online International, 18Jun 2010
- “EU to introduce concept of ‘dynamic debt’,” EurActiv, 18 Jun 2010
- “Britain wins opt-out from EU ‘economic government’,” EurActiv, 18 Jun 2010
- “German-Spanish whispering wars hit euro zone,” Reuters, 18 Jun 2010
- “Barroso calls for bank stress tests to be released,” EUobserver, 17 Jun 2010
- “Europe to take bank levy proposal to G20,” EUobserver, 17 Jun 2010
- “EU leaders split on sanctions for budget offenders,” EurActiv, 17 Jun 2010
- “China, Greece sign deals, want stronger business ties,” Reuters, 15 Jun 2010