EU Parliament set to get tough on debt crisis

The European Parliament will press top officials face to face next week for firmer action to tackle the region's debt crisis, with common bonds and a stronger euro zone rescue fund likely to anchor the debate. European Central Bank President Jean-Claude Trichet will be questioned on August 29 alongside Eurogroup Chairman Jean-Claude Juncker and Olli Rehn, the European commissioner for economic and monetary affairs, in an extraordinary session of parliament's economic and monetary affairs committee.
"It's going to be a pretty free-ranging and open debate but we also need to get down to some hard specifics," Sharon Bowles, the chairwoman of the committee, who will lead the debate, told Reuters in an interview. "The situation has got worse over the summer because the markets wouldn't wait while eurozone governments went on holiday, so the whole solution is now more expensive than it was and is more complicated."
While the European Parliament has no power to compel Trichet, Juncker or Rehn to take action, it has at times acted as a conscience for the euro zone during the crisis, calling ahead of time for leaders totake steps that later have either been explored or implemented. The Parliament is a strong proponent of euro area bonds - the idea of euro-denominated debt jointly issued and underwritten by all 17 euro zone member states to enable sovereign risk to be shared out across the whole region.
If implemented, such a move, which is strongly opposed by Germany, would have the effect of raising Germany's cost of funding in order to bring down the cost for higher-risk states such as Greece, Ireland, Portugal, Spain and Italy. German Chancellor Angela Merkel reiterated her opposition to the idea on Wednesday, saying it would not help in the current crisis and could only be entertained once there was already much greater fiscal co-ordination across the region.
"It is politically irresponsible to succumb to the longings for a quick fix," she said. "I reject euro bonds because they are not a solution for this crisis." Bowles, a former patent lawyer elected to the European Parliament in 2005, acknowledged that while the idea is broadly backed by euro deputies, there are differences of opinion about how it could be implemented and structured.
A Brussels-based think tank, Bruegel, has already laid out a detailed proposal for the bonds, and Rehn has promised parliament he will present more ideas in the coming weeks, but there remains a great deal of uncertainty around the idea. "I can understand why there is a reluctance for a very open-ended arrangement that ends up looking like a transfer union," Bowles said, referring to the idea that the bonds might be a permanent fixture and wealthier states such as Germany would end up having to fund riskier, poorer ones.
"It may be that there has to be some interim, time-limited issuance to get us through the current crisis. "I vary between thinking one has a solution and that there isn't a solution at all, but at least euro bonds is one possible solution that is easier, technically speaking, to do, even if it is very hard politically speaking."
Euro zone leaders agreed at a summit on July 21 to make the European Financial Stability Facility (EFSF), the 440 billion euro regional rescue fund set up last year, more flexible by allowing it to buy bonds in the secondary market and to lend pre-emptively to governments, among other steps. But financial markets were unconvinced by the moves and sovereign debt yields of weaker euro zone states have remained near or at record highs, reflecting the high level of risk and the lack of confidence investors have in the decisions.
The details of the July 21 agreement are still being finalised and it will not come fully into force until approved by individual euro zone parliaments in the coming weeks. In the meantime, pressure is already building for leaders to take further steps to head off any renewed market pressures. As well as the euro area bonds proposal, there is a push to enlarge the capacity of the EFSF, with Belgian Finance Minister Didier Reynders saying the fund may need to be several times larger than it is and others suggesting it needs to be raised to anywhere from 1 trillion to 2 trillion euros.