EU LEADERS will renew their efforts today to convince markets they can overcome the euro sovereign debt emergency as pressure grows on Spain over the precarious state of its public finances.
After a fresh report that Spain was preparing to seek aid from European and global authorities, the leaders will attend a one-day summit in Brussels to settle divisions over measures to reinforce the currency’s foundations.
While three summits in recent months were overshadowed by the debt debacle, a senior diplomat said the leaders believed today’s gathering would be the first this year to take place without an atmosphere of “immediate crisis.”
Spain announced yesterday it will publish results of bank stress tests, throwing down the gauntlet to other euro zone nations to be more transparent about their financial systems. At the same time Berlin signalled a U-turn by dropping its resistance to the publication of stress test results on German banks.
Speculation persists that Madrid is preparing to make use of the euro zone's €750 billion loan guarantee scheme, agreed last month with the International Monetary Fund (IMF) and the EU Commission. Madrid-based business newspaper El Economistasaid yesterday that the EU, the IMF and US treasury were readying a €250 billion credit line for Spain, a report which was promptly denied in Brussels, Washington and the Spanish capital.
While similar reports in leading German newspapers have also been denied, it is widely acknowledged in official circles in Brussels that Madrid is coming under mounting strain because of a freeze in inter-bank lending and a spike in its borrowing costs.
Prime minister José Luis Zapatero is due to meet IMF managing director Dominique Strauss-Kahn tomorrow, although Madrid has said it will not be discussing any financial rescue for Spain.
Mr Zapatero unveiled new plans yesterday to overhaul his country’s rigid labour laws. At the same time, the premium investors’ demand to hold Spanish debt rose to its highest level against German debt since the single currency was originally established in 1999.
In the face of such pressure, EU leaders still hope to focus today on plans to deepen economic co-ordination to avert any repeat of the collapse that brought Greece to the brink of bankruptcy.
“It is usually in times like this that we can make progress in the European project,” commission chief José Manuel Barroso said. “The reality is that member states are ready to accept some proposals that some years ago or even some months ago were simply not acceptable.”
Although draft summit conclusions say the leaders “agree” on measures to strengthen budgetary discipline and economic surveillance, they are at odds over sanctions. French president Nicolas Sarkozy had sought the creation of a new euro zone secretariat to oversee economic governance in the single currency area. This was seen, however, as an effort to weaken the ECB and German influence over budgetary surveillance.
Although Mr Sarkozy backed down when he met Angela Merkel on Monday, the German chancellor wanted surveillance conducted in a 27-country framework.
Ireland supports this stance, which was seen to reflect Berlin’s determination to safeguard the influence over budgetary surveillance of its allies in Sweden, Britain and Poland.
The leaders will also agree to: open EU accession talks with Iceland; allow Estonia’s entry into the euro; agree new sanctions against Iran; and adopt general targets for a medium-term economic plan.