Angela Merkel, Germany’s chancellor, and Nicolas Sarkozy, France’s president, will set out ideas for closer eurozone economic co-ordination at tomorrow’s (4 February) summit of EU leaders in Brussels. The ideas are part of what the German government calls a “pact for competitiveness” to improve the performance of the eurozone.
The elements that could be included in the pact have not yet been agreed by governments. But they are expected to include ‘debt brakes’ – explicit deficit limits written into national legislation – and moves towards convergence of retirement ages.
German government sources said, however, that no agreement was expected on details tomorrow as there had not yet been detailed discussion with other partners. An agreement on closer economic co-ordination would be based, they added, on a commitment from each eurozone country to take action in areas that remained national competences, such as tax, wages and social-security policies, which all “had an effect on competitiveness”.
José Manuel Barroso, the president of the European Commission, warned yesterday against plans to set up new economic governance rules outside the existing EU treaty rules. “We have been in favour of more policy co-ordination and better economic governance but we have to do it in a way that is coherent and compatible with the treaties,” he told MEPs. “We would not further our cause if parallel structures were to work in an ultimately incoherent manner,” he said.
The competitiveness pact is one part of a comprehensive package of actions designed to strengthen the eurozone. The measures making up the package will be discussed by EU leaders over lunch on Friday but will be agreed only at the next European Council, on 24-25 March. Jean-Claude Trichet, the president of the European Central Bank, will take part in the discussion.
Barroso said last week (31 January) that the summit should provide “the clear direction for progress on the comprehensive package”, while stressing the importance of discussions on energy and innovation, the main topics for the meeting.
The package includes implementing measures to improve economic governance, agreed by eurozone leaders in October, based on work by a special taskforce chaired by Herman Van Rompuy, the president of the European Council, and including increased surveillance of countries during their budget planning and tougher sanctions for countries that fail to control debts and deficits. They still have to be agreed by governments and the European Parliament by June (see Page 16).
Energy and innovation remain on the agenda
Although urgent economic concerns have already stolen the limelight in the build-up to tomorrow’s summit, the main subjects for the one-day meeting remain energy and innovation.
Herman Van Rompuy, the president of the European Council who is chairing the meeting, said yesterday (2 February) that the two issues were of “paramount importance” for the future. He said that the EU must achieve a fully integrated energy market with closely linked infrastructure connections. He also called on leaders to agree to boost innovation activities.
But the agenda for Friday’s meeting has also been expanded to include other pressing matters. One is the situation in Egypt and Tunisia, which will be discussed over lunch.
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In addition, Lars Løkke Rasmussen, Denmark’s prime minister, is expected to raise the issue of the handling of asylum seekers. He made the request after the European Court of Human Rights ruled that member states should stop transferring applicants for asylum to Greece because basic standards of humane treatment were not being respected. This ruling has major implications for EU asylum policy, because asylum applicants are usually returned to the first EU member state they entered so that their applications can be processed.
The package also includes possible changes to the bailout schemes for Greece and Ireland. The Greek government has suggested that the repayment deadlines for its €110 billion loan should be extended to make it easier to meet its repayments. Irish opposition politicians have said they will try to renegotiate terms of Ireland’s €67.5bn in loans from the eurozone and the International Monetary Fund, especially the rate of interest. Ireland is holding elections on 25 February, which are expected to lead to a coalition government between centre-right Fine Gael and the centre-left Labour Party.
The other important elements are changes to the eurozone rescue fund, the European Financial Stability Facility (EFSF), which is able to lend only around half of its total assets of €440bn to eurozone countries in financial difficulties. This is because of the need for a high level of guarantees and cash buffers to maintain its triple-A status. Leaders need to agree how to increase the lending capacity of the fund, through changes to the guarantees and capital that each contributing country provides.
The final issue is the development of a European Stability Mechanism that will replace the EFSF when it expires in 2013.
Officials said that leaders might also discuss a new round of stress tests to establish the financial health of banks. EU governments need to agree on the form of these tests, but the debate is politically sensitive because of the divergent condition of banks in different member states.