Monday, 21 May 2012 17:44
BRUSSELS: EU leaders will lay foundations for a new growth strategy at a Wednesday summit, agreeing cross-border borrowing to kickstart targeted investment in the run-up to key Greek and French elections.
But for all the talk at a weekend G8 summit that saw US President Barack Obama join calls to temper austerity with growth, EU leaders have very little room for maneouvre until the Greeks and the French end voting on June 17.
With a black hole in Spanish bank books of as much concern on markets than the risk of Greece exiting the eurozone, EU leaders are also watching whether the European Central Bank needs to, or will, step in to ease investor worries.
In his invitation to the informal summit being held over dinner, European Union president Herman Van Rompuy called for a "no taboos" debate on how to boost growth and jobs.
But the sums involved for new "project bonds" towards targeted investment are tiny: just 230 million euros in a pilot phase though the funds are then expected to attract top-up lending from the European Investment Bank (EIB) and private-sector, an EU diplomat said.
The project bonds are the first of three policy changes also involving EU governments putting another 10 billion euros into the EIB, and "re-directing" unspent EU grants currently in national coffers, the source added.
The European Parliament is to be asked to approve the plans on Tuesday, "so that we can deliver this pilot phase in time for Wednesday's dinner," in the words of a top EU diplomat who asked to remain anonymous.
But sceptics among leaders will only agree to launch dedicated EU project bonds "on the understanding that if it doesn't work, we're going to kill" all talk of future, permanently-pooled eurobonds, this source underlined.
Meanwhile, "traditionally cautious" countries remain unconvinced about calls to increase EIB resources, warning that a lack of private funding means risky projects may get go-aheads, in turn threatening the bank's Triple-A rating.
With a German-led treaty obliging fiscal austerity still to face an Irish referendum and pass ratification hurdles in a host of its 25 signatories, a related growth declaration offering a new equilibrium must wait til end-June.
New Socialist French President Francois Hollande has to see what kind of backing he gets from his country's parliamentary election, while on Greece, "it is very difficult to see what meaningful we can do," the diplomat underlined.
"Whatever we do there runs the risk of being seen as undue interference in the democratic process," the diplomat stressed, "and experience shows it always backfires" in such circumstances.
Gilles Moec of Deutsche Bank said that the "minimum" requirement from this fraught four-week period would be "another round of massive liquidity injection by the ECB" and "a doubling" of the eurozone firewall's 800-billion-euro size.
The London-based analyst also said there is a need to change European Stability Mechanism rules "to allow it to help recapitalise banks without keeping the cost on the ailing member states' balance sheet."
Copyright AFP (Agence France-Presse), 2012