Open Europe sums up last week developments:
Following the failure of the unprecedented €110bn Greek bailout to calm the markets, eurozone leaders last week agreed a further €500bn package to shore up confidence in other governments such as Spain, Portugal and Ireland [you have to read how this decision was taken by the leaders of the eurozone]. The IMF said it would contribute an additional sum of at least half of the EU’s total contribution, or €250bn. Spanish daily El Pais reported that French President Nicolas Sarkozy had threatened to leave the euro unless Angela Merkel agreed to the bailout package.
While the UK will not take part in the €440bn aid package, it does participate in the EU’s ‘stability fund’, originally designed to aid struggling eastern European countries but which has now been extended to cover the eurozone. This ‘stability fund’ allows the Commission to borrow up to €60 billion a year on international markets, in addition to €50 billion that was already in the pot, using the EU budget as collateral. If a receiving country fails to pay back the loan, all 27 EU member states would be forced to pay into the EU budget to cover the default, meaning that British taxpayers would be liable for about 13 percent of any losses.
Extraordinarily, the legal basis for the extension of the stability fund will be Article 122 of the Lisbon Treaty, which allows money to be sent to countries within 48 hours in the event of a natural disaster or other “exceptional event” beyond its control [in this interview, the German minister who was negotiating for Germany recognizes that the last bailout scheme is a clear violation of the existing treaties-but he doesn’t seem to care]. The major decisions were made at a specially convened meeting of eurozone ministers, leaving the UK almost entirely sidelined. In any event, the use of Article 122 meant that the decision was taken by Qualified Majority Voting and that the UK could not have blocked the decision.
In another unprecedented move the European Central Bank has started buying eurozone governments’ bonds, a move criticised by German central bank chief Axel Weber and seen by the German media as undermining the Bank’s political independence [in the long run, I think it is the most dramatic decision that the EU took last week].
Meanwhile, Germany has called for a change to the EU treaties in order to strengthen the eurozone’s rules and establish an EU ‘economic government’, with proposals ranging from fiscal transfers to increased EU powers over national budgets and sanctions for countries breaking the rules. The proposals were outlined on Friday in a meeting of EU finance meetings held under a ‘task force’ headed by EU President Herman Van Rompuy.
These proposals will primarily cover the eurozone, but may spill over to Britain in one way or another. German Finance Minister Wolfgang Schäuble said, “We won’t make it without amendments to the existing treaties. I know many other countries are sceptical. That is why we will be having arguments back and forth.” Writing in today’s FT, former Italian PM and European Commission President Romano Prodi described the recent developments “as a very important step towards the gradual creation of a European fiscal federalism.”
Source: Open Europe