Tags: Europe Increases Urgency on Euro | May Meet Earlier

Europe More Urgent on Euro as Germany Softens Demands

Friday, 28 Jan 2011 01:42 PM

Europe signaled increased urgency on the eurozone crisis on Friday with the possibility of a special summit sooner than expected, while Germany aired the reforms it might want in exchange for more emergency support.

With German opposition to increasing the euro bailout fund appearing to soften, eurozone sources said the European Union was considering extending bailout loans to Greece and Ireland to 30 years in a bid to draw a line under the bloc's debt crisis.

Eurozone sources said the special summit could take place in early March after criticism it was moving too slowly. Austrian Chancellor Werner Faymann was quoted on Friday as saying there was a need to inject more urgency into the decision about the raising the capacity of the eurozone bailout fund.

"The problem must be solved in March, the sooner the better," Faymann told Sueddeutsche Zeitung. "Continual discussions about this are anything other than helpful."

It was unclear whether the special summit being considered for March would involve leaders of eurozone countries or the whole European Union, said the sources. Holding an event could counter criticism of lacking urgency among European leaders.

"We would be happy to have such a meeting because preparations on a comprehensive package are not going as rapidly as some would like, let's put it that way," said one source.

"There is a sense that the momentum and urgency has decreased, partly because the market pressure appears to have diminished, even if that is not really the case," added the source. "We must not become complacent."

EU finance ministers agreed last week to take their time over beefing up the eurozone's rescue fund, in a go-slow approach championed by Germany which could test the patience of investors spooked by the debt crisis.

Signs also emerged on Friday that Berlin may be softening its opposition to increasing the size of the 440 billion euro ($600 billion) European Financial Stability Facility (EFSF).

A German discussion paper from Chancellor Angela Merkel's office, seen by Reuters, proposes a euro zone pact to improve competitiveness by targeting European states' wage costs, public finances and corporate taxation.

It says the most urgent measures to improve competitiveness should be agreed in a package to be implemented within a year and the pact could be enforced by financial sanctions.

Measures could include other countries imitating Germany's "debt brake" law enforcing fiscal discipline, and changing the retirement age, where German is moving towards retirement at 67 while eurozone partners like Greece and France retire earlier.

Such suggestions are in line with Germany's insistence that any boost to the euro bailout fund, as proposed by the European Commission chief Jose Manuel Barroso and resisted by Berlin, be strictly in the context of a comprehensive reform package.

Some analysts think Germany could compromise not only on strengthening the EFSF but also on having it charge lower rates to recipient countries or even buy their government bonds.

Germany insists there is no immediate need to beef up the EFSF, stressing instead the need for preventative measures to slash public debt and deficits in eurozone countries.

There are differing positions inside the German government towards expanding the EFSF with the Free Democrats, Merkel's junior coalition partners, opposed. But FDP leader Guido Westerwelle signaled on Friday there was scope for movement.

Westerwelle said there are no taboos in his party against expanding the eurozone bailout fund.

"We're in the midst of an on-going negotiating process and I want good results. You don't get that if you dictate your price in public beforehand or draw lines in the sand," he told the Stuttgarter Zeitung newspaper.

At the same time, European Union officials are considering extending eurozone bailout loans to Greece and Ireland to 30 years in a bid to draw a line under the bloc's debt crisis, two euro zone sources said.

The sources said European Central Bank Governing Council member Axel Weber, head of Germany's influential Bundesbank, had suggested stretching out the maturities from three years for Greece and seven for Ireland as part of a comprehensive package to overcome the crisis.

The idea surfaced in intensive talks among euro zone ministers, central bankers and officials on the sidelines of the World Economic Forum in Davos this week, the sources said.

"There are all sorts of ideas. I don't know how much weight this one carries. But of course it's not unheard of. Britain and some other countries only paid off some World War One bonds just recently," a senior eurozone source said.

© 2015 Thomson/Reuters. All rights reserved.

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