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Europe's 'last chance' to solve debt crisis

The National Ferry Biedermann

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AMSTERDAM // Confronting major questions about the future of the euro zone, European Union leaders started a crucial two-day summit in Brussels last night.

They are meeting to restore confidence in the single currency by finally dealing firmly with the debilitating debt crisis facing the bloc.

Yesterday, a European regulator said the continent’s banks must raise US$153.8 billion (Dh565bn) to meet a new standard meant to inoculate the institutions against market turmoil and bad government debt.

European banks have billions of dollars of risky government bonds on their books, and as the continent’s crisis has deepened, investors have become concerned the institutions will not be able weather expected losses.

In response, European Union leaders decided to force banks to raise more money. The European Banking Authority said yesterday that banks need to raise US$153.8 billion to meet those requirements.

In another sign of the huge market pressure on Europe’s borrowing abilities, the rating agency, Standard & Poor’s, on Wednesday night put the EU itself and its banks on notice that they could lose the highest credit rating.

The agency had earlier warned 15 euro zone countries, including Germany, that their ratings were in danger of being downgraded.

The European Central Bank (ECB) to whom many are now looking for a solution, yesterday lowered its main interest rate to 1 per cent.

That is as low as during the financial crisis in 2008 but not as low as some analysts had hoped for. But all eyes remained on the meeting in Brussels, as it is widely accepted that far-reaching reforms of the EU and its institutions are necessary to solve the problems in the euro zone and beyond. This has led to escalating political tensions in the bloc.

Nicolas Sarkozy, the French president, dramatically highlighted the stakes yesterday at a meeting of Conservative Euro leaders in Marseille ahead of the Brussels talks.

“Never has Europe been so necessary and never has it been in so much danger,” he said. “Never has the risk of Europe’s explosion been so great. If we don’t have agreement on Friday we won’t have a second chance.”

The outline of a deal between the euro zone’s two main players, Germany and France, emerged over the past week, but a host of financial and political obstacles continue to bedevil the policymakers.

Borrowing rates for weaker euro zone countries remained under pressure and non-euro zone EU countries such as Britain, worried at being sidelined, raised new demands of their own.

Even so, as the euro zone crisis threatens the economy of the entire EU and the global financial system, expectations were that the bloc would lurch towards a deal.

Last Updated:Dec 9, 2011

At the euro-zone summit today, each country will perform its scripted roles but this play has no end in sight.

Alan Philps

Hillary Clinton, the US secretary of state, yesterday stressed the importance of Europe handling the crisis. “We have great confidence in Europe. There is absolutely no doubt about that. But we do need a plan to rally behind to know the way forward,” she said in a message to the EU’s leaders.

Angela Merkel, the German chancellor, and Mr Sarkozy – snidely referred to by some European media as “Merkozy” – sent their proposed measures to the EU on Wednesday, along with a call for rapid action.

“We are convinced that we need to act without delay,” they said in their letter to Herman Van Rompuy, the president of the European Union.

But the measures they proposed and the way they seek to implement them almost guarantee a long and drawn-out process.
The deal focuses heavily on budget discipline in the 17 euro zone countries, even imposing automatic penalties on excessive spending.

This has been a major German demand, as the country seeks to expand its own brand of fiscal prudence to the rest of the euro zone.

But such European interference would mean a substantial loss of sovereignty for the participating countries. Oversight would be in the hands of the European Commission in Brussels and the European Court of Justice in Strasbourg.

For that to be possible, a change to the European Union treaty for all 27 EU members, including those that remain outside the euro zone, is probably required. Next page


A European regulator said the continent's banks must raise US$153.8 billion (Dh565bn) to meet a new standard meant to inoculate the institutions against market turmoil and bad government debt.

Europe's 'last chance' to solve debt crisis$.get('/national/jsp/community/national_article_the_most.jsp', {'section':'News'}, function(data) { $("#national_mostNews").html(data);});

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