French President Francois Hollande, who took office last week, challenged Germany’s handling of the financial crisis, calling for joint borrowing and looser conditions for cash injections into struggling banks.
Hollande teamed with Spanish Prime Minister Mariano Rajoy to press for tonight’s meeting of European leaders to break with German-dominated budget-cutting policies that have failed to stabilize the 17-nation euro area and led to speculation that Greece might be forced out.
France will “put all the ideas for growth and liquidity on the table,” Hollande told reporters in Paris before heading to Brussels for his first European summit. “Europeans have to know where Europe is heading. There has to be political direction. Milestones have to be established and goals set.”
The summit, the 18th since Greece was convulsed by debt, takes place with market indicators showing mounting stress on banks, notably in Spain. The euro tumbled to a 21-month low against the dollar amid concern that divisions between France and Germany will frustrate the search for answers.
On his ninth day in office, Hollande shifted the crisis- fighting optics by holding a pre-summit press conference with the leader of recession-wracked Spain, instead of coordinating France’s policies with Germany, Europe’s dominant economy.
Leaders of all 27 European Union countries meet at 7 p.m. The crisis in the euro area will come up only “at the very end,” EU President Herman Van Rompuy said in a pre-summit letter. The next summit, also of all 27, is slated for June 28-29.
Pressure on Merkel
The French-Spanish tandem heaped pressure on German Chancellor Angela Merkel, already on the defensive at home after her party was routed in May 13 elections in Germany’s most- populous state and internationally after her hard line on deficits was drowned out by pro-growth appeals at last week’s Group of Eight meeting.
Europe must chart a path to joint borrowing using euro bonds, should consider enabling its rescue fund to borrow from the European Central Bank and ought to let the rescue fund lend directly to troubled banks, Hollande said.
The latter appeal was coined for Spain’s Rajoy, who is seeking to tap European funds to recapitalize banks weighed down by property-related debt without tying Spain to the same sort of conditions as Greece, Ireland and Portugal, the three countries drawing on international aid.
“Liquidity, sustainability and debt financing are three points that I am going to talk about,” Rajoy said at the French-Spanish press conference.
Spain is embarking on its fourth attempt in three years to shore up lenders saddled with about 184 billion euros ($233 billion) of what the Bank of Spain calls “problematic” assets. Euro governments are divided over whether to let the planned permanent rescue fund lend to banks directly, an EU official told reporters in Brussels yesterday.
The polemics leave the central bank as the first line of defense in a market panic, though a German-led faction on the ECB is against adding to the 212 billion-euro stockpile of government bonds it has amassed during the crisis.
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