EU parliament backs temporary eurobonds
STRASBOURG (FRANCE) THE European Parliament backed a temporary debt mutualisation scheme on Wednesday, despite German scepticism, while European Commission President Jose Manuel Barroso complained about a lack of “urgency” in resolving the eurozone crisis.
The debt redemption fund, proposed by the German Council of Economic Experts, would introduce temporary eurobonds to repay debt over the EU limit of 60 per cent of gross domestic product (GDP), matched by strict fiscal rules to prevent the buildup of new debt.
Such a fund should be made available for a “maximum of 25 years” to eurozone members whose debt exceeds the 60-per-cent threshold and which are not already under a bailout programme, EU lawmakers proposed.
According to the European Commission’s latest economic forecasts for 2013, Germany, France, Italy, Belgium, Malta, the Netherlands, Austria and Cyprus would qualify.
The recommendation was included in the so-called twopack of legislation, which comprises two draft laws further strengthening EU scrutiny over national economic policies within the euro area.
Governments and the commission are anxious to approve the two-pack, to reassure nervous markets. But parliamentarians also inserted other controversial proposals likely to be resisted by Berlin.
German Chancellor Angela Merkel has often been criticized for being too cautious in response to the eurozone’s two-and-a-half year old debt crisis.
In a debate with Barroso before the two-pack vote, socialist leader Hannes Swoboda waved a copy of The Economist magazine, whose latest cover features a sinking ship representing the world economy, with the words, “Please can we start the engines now, Mrs Merkel?” Barroso did not take direct aim at Berlin, but said, “Even when governments are taking the right steps towards reform, they can be negatively impacted by events beyond their control or by the lack of a decisive and comprehensive long-term response.” He spoke as Spain and Italy - the eurozone’s fourth- and third-largest economies - were facing dangerously high borrowing costs and amid fears of a Greek exit from the currency bloc.
“We must recognise that we have a systemic problem, and we need to articulate the vision of where we need to go and also a very concrete path for how to get there,” Barroso said. “I am not sure whether the urgency of this is fully understood in all the capitals.” An EU summit on June 28- 29 is expected to discuss short-term measures, such as giving more funds to the European Investment Bank, as well as medium and longerterm policy responses, starting from a banking union.
Barroso told the lawmakers that the commission “could be ready” to unveil proposals on the matter by the second half of the year.
But the EU assembly also called for 1 per cent of the eurozone’s GDP - slightly less than €100 billion (125 billion dollars) - “to be invested (each year) in European infrastructure, including science and technology,” for ten years.
In addition, parliament wants a commission “roadmap” towards fullyfledged eurobonds.
In a debate on Tuesday, representatives from Merkel’s Christian Democratic Union (CDU) and its Christian Social Union (CSU) sister party said they would vote down all these proposals.
On Wednesday, they ended up in the losing camp.
But in a blow to supporters, the single amendment comprising eurobonds, debt redemption and growth funds was approved by a relatively small margin of 355 to 284, weakening the parliament’s hand in upcoming negotiations with EU governments.