By Polina Chernitsa
EU leaders voted in favor of a monetary union but against a single European debt at the EU summit which came to a close on Saturday.
While leaders of the EU had to make concessions on many issues, Germany refused to compromise on the issue of European bonds. Experts describe the decisions reached at the summit as historic warning that EU leaders might find it hard to put them into effect.
The two-day summit has become the 18th since the eurozone plunged into crisis. Five countries of the seventeen-member monetary union had asked for economic aid before the summit. Italy is set to be the next. For this reason, the participants in the summit couldn’t but resort to urgent measures to address the crisis.
The European growth pact which was considered on the first day of the summit provided for the allocation of €120 bn to stimulate economic growth and create jobs for the young. This sum will be allocated in two 60-billion tranches. At first, Spain and Italy refused to back the project. They signed the pact only after the participants came to agreement on the direct recapitalization of banks. Despite objections from Berlin, Madrid and Rome succeeded in pushing a decision to this effect through.
The recapitalization of banks will be handled by the European Central Bank, which will become the EU’s chief supervisor for the banking sector by the end of the year. European Commission President Jose Manuel Barroso has described this decision as a major step towards a European banking union and towards a closer integration within the EU. However, even though the measure is evidently an effective one, it will require a revision of EU legislation. The Spanish banks, which pleaded for assistance on the eve of the summit, will receive the funds needed in accordance with the old arrangements. The participants in the summit resolved that the 100-billion-euro tranche would be allocated to Spain from the European Stabilization Fund. Dmitry Alexandrov of Univer Capital Investment Group, comments.
“Naturally, there is a need for a single mechanism which would introduce penal sanctions and would pass financial decisions with regard to budgetary planning. For now, this mechanism is nowhere in sight.”
A phased plan to set up an economic and monetary union which would span ten years was proposed by President of the European Council Herman Van Rompuy, President of the European Commission Jose Manuel Barroso, President of the Euro Group Jean-Claude Juncker, and President of the European Central Bank Mario Draghi. The EU chiefs approved of creating a European treasury, one of the key provisions of the plan. A European treasury, they said, would monitor implementation of the union and national budgets and its decisions would be obligatory for execution by all EU member-countries. Experts deem the agreement as important but insufficient because the parties involved failed to agree on the EU’s right to block the adoption of budgets in countries that exceed the limit on borrowing.
The issue of European bonds, sought by Italy, Spain, and France, whose debts had far exceeded the limit, failed to secure approval because of Germany. By issuing Euro bonds the countries concerned hoped to lower the cost of borrowed funds. However, this measure will hit hard on Germany, the EU’s major economy. Contributing to all European stabilization funds, Germany is just not prepared to assume the burden of paying other countries’ debts.
Experts have been optimistic about other outcomes of the summit. The euro has risen against the dollar.
The participants in the summit failed to agree on a phased plan to implement these decisions. Independent expert Dmitry Tratas comments.
“A monetary union would be unviable without a political, financial, and tax union. All these issues should be addressed in one package, not one after another. There is no time for entering united Europe by turn.”
According to Alexei Golubovich of JSC Arbat Kapital Management, it’s too early to speak about a greater integration within the EU. But after all, Europe has always moved towards integration through crises. Besides, the decisions achieved at the recent summit avert the main danger – the collapse of the eurozone.
Time will prove whether the measures suggested at the summit are effective. As an example, experts cite the Sarkozy-Merkel pact on budgetary discipline which was signed at the EU summit in March but have not been ratified by the required number of countries to become law. The German Bundestag voted for it on Saturday evening and the voting was held under the supervision of Angela Merkel, who flew in to attend it after the end of the EU summit in Brussels.