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EU bids to bury deficits, end Greek debt drama

31 January 2012, 10:05 CET
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EU bids to bury deficits, end Greek debt drama

Herman Van Rompuy - Photo EU Council

(BRUSSELS) - EU leaders closed one chapter in the debt crisis Monday with a German-driven treaty meant to end deficits -- then launched a race to resolve Greece's bailout woes.

European Union president Herman Van Rompuy called after for a new deal with Athens "by the end of the week" on the conditions underpinning a long-delayed second bailout for Greece.

Greek Prime Minister Lucas Papademos went immediately into a post-EU summit huddle with a top official from his old employers at the European Central Bank (ECB) and senior EU officials.

"It's too early now to say we need some extra funding," Papademos said early Tuesday. "Our goal is to avert it."

In October last year, Greece was promised a second bailout of 130 billion euros ($171 billion) if it could convince private investors to write off 100 billion euros of debt.

Despite a change of government late last year, new conditions have not been met and the ECB and other national central banks or EU institutions are now being nudged to agree their own write-downs.

With Greece facing a big bill for bond redemptions on March 20, EU partners are on edge amid unrelenting fears of default.

Wall Street was gripped with "renewed default concerns towards Greece and Portugal," investment analysts Charles Schwab said.

Eurozone partners' handling of Greece took a new turn at the weekend when Germany asked the other governments in the currency area to put Athens under control of EU guardians.

"There cannot be any talk of putting any nation under wardenship," said French President Nicolas Sarkozy. "It would not be reasonable, democratic and efficient."

Greece's education minister called the idea "the product of a sick imagination," and although Sweden and others showed sympathy, German Chancellor Angela Merkel did not push this plan further on this occasion.

For her, though, it is about "how Europe can help Greece accomplish the tasks given to it."

The EU focus on bailouts was supposed to give way at Monday's summit to a renewed push to stimulate growth and create jobs across European economies.

This idea even saw tentative moves to place an ambitious free-trade deal with the United States on the coming agenda.

But at its root was the announcement that 25 of 27 countries had adopted the new pact on budgetary discipline.

The Czech Republic joined Britain on the outside looking in, but a threat by Poland to withdraw evaporated after France gave ground in an argument about the influence of non-euro countries on eurozone summits.

Pushed by Germany and the ECB, the treaty -- to be formally signed in March -- will require governments to introduce laws on balanced budgets and impose near automatic sanctions on countries that violate deficit rules.

Only those countries that sign up will be able to access bailout aid from a new rescue fund whose legal basis was also ticked off at the talks. It will enter force after 12 nations ratify it.

The pact is a "first step toward a fiscal union," said European Central Bank chief Mario Draghi amid hopes among some governments that the pact will prompt the ECB to step up a controversial bond purchase programme.

With Italy and Spain still fragile, EU leaders will discuss in March whether to add half as much again to a new rescue fund's initial 500-billion-euro size, amid wider moves to beef up IMF resources.

"We are getting the feeling that there is a shift in Germany's position and I am optimistic," said Italian premier Mario Monti.

Leaders began their summit day by landing on a military airstrip to beat a Belgian general strike that grounded most public transport in protest at a new round of EU-ordered austerity.

Leaders, some facing imminent re-election campaigning, must contend with an unemployment rate averaging 10 percent across the 17-nation eurozone.

European Commission chief Jose Manuel Barroso said 82 billion euros of unspent EU funds could kick-start growth and job creation -- but with the catch that money is matched locally.

He met earlier with premier Mariano Rajoy of Spain, where nearly half of all under-25s are out of work, to talk about a shortfall in meeting deficit reduction targets there.

Madrid plunged quicker into what Brussels deems a "moderate" recession looming large over Europe.

Among ideas adopted by the summit for boosting growth in Europe, there were calls to lower the tax burden on employers to get more people hired, and give all young people guaranteed options in work, training or study.

However, a summit statement concluded: "There are no quick fixes. Our action must be determined, persistent and broad-based."

Communication by euro area Member States - Brussels, 30 January 2012

Agreement on strengthening fiscal discipline and convergence


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