Eurozone under pressure to speed up integration
(BRUSSELS) - Eurozone leaders faced mounting pressure from impatient G20 partners on Wednesday to accelerate integration, while Spain fought to avoid needing a full debt rescue.
As Greece edged towards the formation of a new government and fresh negotiations on the terms of its bailout, the focus turned to a marathon series of European Union meetings culminating in a summit next week.
The work is being taken forward on Wednesday by eurozone Treasury directors meeting in Brussels, on Thursday by finance ministers in Luxembourg and on Friday when the leaders of the eurozone's Big Four of Germany, France, Italy and Spain gather in Rome.
"Decisions on Europe will be taken in the next few days," Italian Prime Minister Mario Monti told reporters at a G20 summit in Mexico on Tuesday, after calling for EU leaders to "draw up a clear road map with concrete interventions to make the euro more credible."
Monti spoke as bond markets jacked up the risk premium both Spain and Italy must pay for government borrowings. The interest demanded for 10-year Spanish bonds is around the level that triggered Greek, Irish and Portuguese bailouts.
A diplomat in Brussels said Spain is expected officially to request financial aid to recapitalise its banks at the Eurogroup meeting on Thursday. Eurozone partners have offered up to 100 billion euros ($125 billion).
While taking care of Spain's immediate needs, European leaders are also looking to tighten their union, with a plan being prepared for the EU summit on June 28-29.
A key report on integrating eurozone economic and monetary union has yet to be shared around capitals; plans for a banking union are being considered only on a step-by-step basis; and ideas for strengthening financial fire-fighting capacity remain mired in disagreement.
A major push is under way to convince eurozone paymaster Germany -- responsible for the lion's share of existing bailouts -- to set up a permanent system for deeper burden sharing whether it is governments or banks that get into trouble.
"It looks as if the eurozone is running out of options and that stop-gap measures no longer do the trick," said Carsten Brzeski of Dutch-based ING, emphasising the need for a "new architecture" for the monetary union to emerge at the summit.
This would eventually involve a permanent eurozone liquidity or funding facility, single bank supervision and deposit guarantees, he said.
Though this "might not be enough to restore calm on financial markets," he said it could prove "enough to bring the European Central Bank back into action."
Europe-wide guarantees on deposits and a central authority to close banks that go bust are seen as a way to promote the flow of cash through the system and give more confidence to lend.
Supporters believe a union would break a cycle in which banks are obliged to rely on their own troubled countries' governments and central banks, creating a vicious cycle of mounting debt that brings down all of the institutions.
The United States, the International Monetary Fund and the European Central Bank have all urged greater banking integration in Europe.
Chancellor Angela Merkel, famously cautious since the debt crisis kicked in more than two years ago, has said some ideas can be considered in the short term, but maintains that the degree of integration economists say is needed can only be for the long term.
At the G20 talks in Mexico, the heads of Europe's major economies agreed "to consider concrete steps towards a more integrated financial architecture, encompassing banking supervision, resolution and recapitalisation, and deposit insurance."
Leaders said eurozone members will "take all necessary measures" to stabilise the single currency bloc, including moves to "break the feedback loop" that has weak governments piling on more and more debt to bail out their banks.
"The seeds of a pan-European recovery plan were planted," said IMF managing director Christine Lagarde.
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